UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 [Fee Required]

For the fiscal year ended December 31, 1997
                          -----------------

                                       or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]

For the transition period from               to
                              ---------------  ---------------

Commission File Number 0-11981
                       -------

                              PS PARTNERS II, LTD.
           ---------------------------------------------------------
             (Exact name of registrant as specified in its charter)

             California                                       95-3878680
-------------------------------------------          ---------------------------
    (State or other jurisdiction of                        (I.R.S. Employer
     incorporation or organization)                     Identification Number)

           701 Western Avenue
          Glendale, California                                91201-2394
-------------------------------------------          ---------------------------
(Address of principal executive offices)                      (Zip Code)


Registrant's telephone number, including area code:  (818) 244-8080
                                                     --------------

Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

Securities registered pursuant to Section 12(g) of the Act:

                      Units of Limited Partnership Interest
                      -------------------------------------
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days.

                                    Yes X No
                                       ---  ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K. [X]


--------------------------------------------------------------------------------
                       DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE

<PAGE>

                                     PART I

ITEM 1.  BUSINESS.
         --------

General
-------

         PS Partners II, Ltd.  (the  "Partnership")  is a publicly  held limited
partnership  formed under the  California  Uniform  Limited  Partnership  Act in
August 1983.  Commencing in November 1983, 128,000 units of limited  partnership
interest (the "Units") were offered to the public in an interstate offering. The
offering was completed in June 1984.

         The  Partnership   was  formed  to  invest  in  and  operate   existing
self-service  facilities  offering  storage  space for personal and business use
(the  "mini-warehouses")  and to  invest  up to 30% of the net  proceeds  of the
offering  in  and  operate  existing  office  and  industrial  properties.   The
Partnership's real estate investments consist of wholly-owned  facilities and an
investment  in a general  partnership  (SEI/PSP  II Joint  Ventures,  the "Joint
Venture")  with  Public  Storage,  Inc.  ("PSI")  (formerly  known  as  "Storage
Equities,  Inc."),  a real  estate  investment  trust  ("REIT")  organized  as a
corporation under the laws of California.

         In 1995, there was a series of mergers among Public Storage Management,
Inc. (which was the Partnership's mini-warehouse operator), Public Storage, Inc.
and their  affiliates  (collectively,  "PSMI"),  culminating in the November 16,
1995 merger (the "PSMI Merger") of PSMI into Storage Equities,  Inc. In the PSMI
Merger,  Storage  Equities,  Inc.  was  renamed  "Public  Storage,  Inc." and it
acquired  substantially  all of PSMI's United States real estate  operations and
became the  operator of the mini  warehouses  of the  Partnership  and the Joint
Venture.

         The Partnership's general partners (the "General Partners") are PSI and
B. Wayne Hughes  ("Hughes").  PSI became a co-general partner in September 1993,
when PSI acquired the interest of PSI Associates,  Inc. ("PSA"), an affiliate of
PSMI, relating to PSA's general partner capital contribution in the Partnership.
Hughes has been a general partner of the Partnership since its inception. Hughes
is the chairman of the board and chief executive  officer of PSI, and Hughes and
members of his family (the "Hughes  Family") are the major  shareholders of PSI.
The Partnership is managed,  and its investment decisions are made by Hughes and
the  executive  officers  and  directors  of PSI.  The  limited  partners of the
Partnership  have no right to  participate  in the  management or conduct of its
business affairs. PSI believes that it is the largest operator of mini-warehouse
facilities in the United States.

         Through  1996,  the  business  parks of the  Partnership  and the Joint
Venture  were  managed  by Public  Storage  Commercial  Properties  Group,  Inc.
("PSCPG") pursuant to a Management  Agreement.  In January 1997, the Partnership
and PSI and other related partnerships  transferred a total of 35 business parks
to PS Business Parks, L.P.  ("PSBPLP")  (formerly known as "American Office Park
Properties, L.P.,"), an operating partnership formed to own and operate business
parks in which PSI has a significant  interest.  Included  among the  properties
transferred  were the business  parks of the  Partnership  and Joint  Venture in
exchange for a partnership interest in PSBPLP. Until March 17, 1998, the general
partner of PSBPLP was American  Office Park  Properties,  Inc.,  an affiliate of
PSI. On March 17, 1998,  American Office Park  Properties,  Inc. was merged into
Public Storage Properties XI, Inc., which changed its name to PS Business Parks,
Inc. ("PSBP"). PSBP is a REIT affiliated with PSI, and is publicly traded on the
American  Stock  Exchange.  As a result of the  merger,  PSBP became the general
partner of PSBPLP (which changed its name from American Office Park  Properties,
L.P. to PS Business Parks, L.P.). See Item 13.

         PSI's current  relationship with the Partnership includes (i) the joint
ownership of 27 of the  Partnership's 33 properties (which excludes the property
transferred to PSBPLP in January 1997),  (ii) PSI is a co-general  partner along
with Hughes,  who is chairman of the board and chief  executive  officer of PSI,
(iii)  as  of  December  31,  1997,  PSI  owned  approximately   73.81%  of  the
Partnership's  limited  partnership units and (iv) PSI is the operator of the 33
properties in which the  Partnership  has an interest  (these 33 properties  are
referred to collectively hereinafter as the "Mini-Warehouse Properties").

                                       2

<PAGE>

Investments in Facilities 
--------------------------

         The  Partnership  owns  interests  in  33  properties   (excluding  the
properties  transferred  to PSBPLP in January 1997);  27 of such  properties are
owned  by  the  Joint  Venture.  One  property  is  a  leasehold  interest  in a
mini-warehouse  property in Raleigh,  North Carolina.  The Partnership purchased
its last property in July, 1984.  Reference is made to the table in Item 2 for a
summary of information about the Partnership's properties.

         The Partnership believes that its operating results have benefited from
favorable   industry   trends  and  conditions.   Notably,   the  level  of  new
mini-warehouse  construction  has decreased since 1988 while consumer demand has
increased.  In  addition,  in recent  years  consolidation  has  occurred in the
fragmented mini-warehouse industry.

Mini-warehouses
---------------

         Mini-warehouses,  which  comprise  the  majority  of the  Partnership's
investments,  are designed to offer  accessible  storage  space for personal and
business use at a relatively low cost. A user rents a fully enclosed space which
is for the  user's  exclusive  use and to which  only the user has  access on an
unrestricted   basis   during   business   hours.   On-site   operation  is  the
responsibility  of resident  managers who are supervised by area managers.  Some
mini-warehouses  also  include  rentable  uncovered  parking  areas for  vehicle
storage.  Leases for  mini-warehouse  space may be on a long-term or  short-term
basis,  although typically spaces are rented on a month-to-month  basis.  Rental
rates vary according to the location of the property and the size of the storage
space.

         Users of space in  mini-warehouses  include both  individuals and large
and small  businesses.  Individuals  usually  employ  this space for storage of,
among other things, furniture, household appliances,  personal belongings, motor
vehicles,  boats,  campers,  motorcycles and other household  goods.  Businesses
normally employ this space for storage of excess  inventory,  business  records,
seasonal goods, equipment and fixtures.

         The  Mini-Warehouse  Properties  generally  consist  of  three to seven
buildings  containing an aggregate of between 259 and 1,113 storage spaces, most
of  which  have  between  25 and 400  square  feet  and an  interior  height  of
approximately 8 to 12 feet.

         The Mini-Warehouse Properties experience minor seasonal fluctuations in
the occupancy levels of  mini-warehouses  with occupancies  higher in the summer
months  than  in  the  winter  months.  The  Partnership   believes  that  these
fluctuations result in part from increased moving activity during the summer.

         The Mini-Warehouse  Properties are  geographically  diversified and are
generally  located in heavily  populated  areas and close to  concentrations  of
apartment  complexes,  single family  residences  and  commercial  developments.
However,  there may be  circumstances  in which it may be  appropriate  to own a
property  in a less  populated  area,  for  example,  in an area  that is highly
visible  from a major  thoroughfare  and  close to,  although  not in, a heavily
populated area. Moreover,  in certain population centers,  land costs and zoning
restrictions may create a demand for space in nearby less populated areas.

         As  with  most  other  types  of  real  estate,   the   conversion   of
mini-warehouses to alternative uses in connection with a sale or otherwise would
generally require substantial capital expenditures. However, the Partnership and
the Joint  Venture do not intend to convert  the  Mini-Warehouse  Properties  to
other uses.

Business Parks
--------------

         Through 1996,  the Joint Venture owned and operated an office  building
in Lakewood,  California  and the  Partnership  directly  owned a retail  office
warehouse  center in Austin,  Texas.  These business  parks were  transferred to
PSBPLP in January 1997 in exchange for partnership interests in PSBPLP.

                                       3

<PAGE>

Investment Objectives and Polices;  Sale or Financing of Investments
--------------------------------------------------------------------

         The  Partnership's  objectives are to (i) preserve and protect invested
capital,   (ii)  maximize  the  potential  for  appreciation  in  value  of  its
investments,  (iii)  provide  Federal  income tax  deductions so that during the
early  years of  property  operations  a portion  of cash  distributions  may be
treated  as a  return  of  capital  for tax  purposes,  and  therefore,  may not
represent  taxable  income to the limited  partners,  and (iv)  provide for cash
distributions  from  operations.  The Partnership will terminate on December 31,
2020 unless dissolved earlier.

Operating Strategies
--------------------

         The  Mini-Warehouse  Properties  are  operated by PSI under the "Public
Storage" name, which the Partnership believes is the most recognized name in the
mini-warehouse  industry.  The major  elements  of the  Partnership's  operating
strategies are as follows:

         *    Capitalize on Public  Storage's name  recognition.  PSI,  together
              with  its  predecessor,  has  more  than  20  years  of  operating
              experience in the  mini-warehouse  business.  PSI has informed the
              Partnership  that  it  is  the  largest  mini-warehouse   facility
              operator  in  the  United  States  in  terms  of  both  number  of
              facilities  and rentable  space  operated.  PSI believes  that its
              marketing  and  advertising   programs   improve  its  competitive
              position in the market.  PSI's in-house Yellow Pages staff designs
              and  places   advertisements  in  approximately  700  directories.
              Commencing in early 1996, PSI began to experiment with a telephone
              reservation  system  designed to provide added  customer  service.
              Customers  calling either PSI's toll-free  referral system,  (800)
              44-STORE,  or a  mini-warehouse  facility  are  directed  to PSI's
              reservation system where a trained  representative  discusses with
              the customer space  requirements,  price and location  preferences
              and also  informs the  customer  of other  products  and  services
              provided  by  PSI.  As  of  December  31,  1997,   the   telephone
              reservation  system was supporting  rental  activity at all of the
              Partnership's  properties.   PSI's  toll-free  telephone  referral
              system  services   approximately  160,000  calls  per  month  from
              potential  customers  inquiring as to the nearest  Public  Storage
              mini-warehouse.

         *    Maintain  high  occupancy  levels  and  increase  realized  rents.
              Subject to market conditions,  the Partnership  generally seeks to
              achieve average occupancy levels in excess of 90% and to eliminate
              promotions  prior to increasing  rental rates. The monthly average
              realized  rent per  occupied  square  foot for the  Mini-Warehouse
              Properties was $.64 in 1997 compared to $.61 in 1996. The weighted
              average occupancy levels at the Mini-Warehouse Properties were 90%
              in 1997  compared to 91% in 1996.  The  Partnership  has increased
              rental rates in many markets where it has achieved high  occupancy
              levels and eliminated or minimized promotions.

         *    Systems and controls.  PSI has an  organizational  structure and a
              property   operation  system,   "CHAMP"   (Computerized  Help  and
              Management  Program),  which links its corporate  office with each
              mini-warehouse.  This enables PSI to obtain daily information from
              each mini-warehouse and to achieve  efficiencies in operations and
              maintain   control  over  its  space   inventory,   rental  rates,
              promotional  discounts and  delinquencies.  Expense  management is
              achieved through  centralized payroll and accounts payable systems
              and a comprehensive  property tax appeals department,  and PSI has
              an extensive  internal  audit  program  designed to ensure  proper
              handling of cash collections.

         *    Professional property operation.  In addition to the approximately
              150 support  personnel at the Public  Storage  corporate  offices,
              there are  approximately  2,700  on-site  personnel who manage the
              day-to-day operations of the mini-warehouses in the Public Storage
              system.  These on-site  personnel  are  supervised by 110 district
              managers,  15 regional managers and 3 divisional managers (with an
              average of 13 years experience in the mini-warehouse industry) who
              report to the president of the  mini-warehouse  property  operator
              (who  has  14  years  of  experience   with  the  Public   Storage
              organization).  PSI carefully  selects and extensively  trains the
              operational  and support  personnel  and offers them a progressive
              career path. See "Mini-warehouse Property Operator."

                                       4

<PAGE>

Mini-warehouse Property Operator
--------------------------------

         The  Mini-Warehouse  Properties  are  managed  by  PSI  pursuant  to  a
Management Agreement.

         Under the  supervision of the  Partnership  and the Joint Venture,  PSI
coordinates  the operation of the  facilities,  establishes  rental policies and
rates,  directs  marketing  activity and directs the  purchase of equipment  and
supplies, maintenance activity, and the selection and engagement of all vendors,
supplies and independent contractors.

         PSI engages,  at the expense of the property owners,  employees for the
operation of the owners'  facilities,  including  resident  managers,  assistant
managers, relief managers, and billing and maintenance personnel. Some or all of
these employees may be employed on a part-time basis and may also be employed by
other persons, partnerships,  REITs or other entities owning facilities operated
by PSI.

         In the purchasing of services such as advertising  (including broadcast
media advertising) and insurance, PSI attempts to achieve economies by combining
the resources of the various facilities that it operates. Facilities operated by
PSI  have  historically  carried   comprehensive   insurance,   including  fire,
earthquake, liability and extended coverage.

         PSI has developed systems for space inventory,  accounting and handling
delinquent  accounts,  including a  computerized  network  linking PSI  operated
facilities. Each project manager is furnished with detailed operating procedures
and typically  receives  facilities  management  training from PSI. Form letters
covering a variety of circumstances are also supplied to the project managers. A
record of actions  taken by the project  managers  when  delinquencies  occur is
maintained.

         The  Mini-Warehouse  Properties  are typically  advertised via signage,
yellow pages,  flyers and broadcast media advertising  (television and radio) in
geographic  areas in which many of the facilities are located.  Broadcast  media
and other advertising costs are charged to the facilities  located in geographic
areas affected by the  advertising.  From time to time,  PSI adopts  promotional
programs, such as temporary rent reductions, in selected areas or for individual
facilities.

         For as long as the Management  Agreement is in effect,  PSI has granted
the  Partnership  and the Joint  Venture  non-exclusive  license  to use two PSI
service  marks and related  designs,  including  the "Public  Storage"  name, in
conjunction  with rental and  operation of  facilities  managed  pursuant to the
Management  Agreement.   Upon  termination  of  the  Management  Agreement,  the
Partnership  and the Joint  Venture  would no  longer  have the right to use the
service marks and related designs. The General Partners believe that the loss of
the right to use the  service  marks and related  designs  could have a material
adverse effect on the Partnership's business.

         The  Management   Agreement  with  PSI  provides  that  the  Management
Agreement may be terminated  without cause upon 60 days written notice by either
party.

Business Park Operator
----------------------

         Through  1996,  the  business  parks of the  Partnership  and the Joint
Venture were managed by PSCPG, now known as PS Business Parks, Inc., pursuant to
a Management  Agreement.  In January 1997,  these properties were transferred to
PSBPLP in exchange for a partnership interest.

Competition
-----------

         Competition in the market areas in which the Mini-Warehouse  Properties
operate is  significant  and  affects the  occupancy  levels,  rental  rates and
operating expenses of certain of the facilities.  Competition may be accelerated
by any increase in availability  of funds for investment in real estate.  Recent
increases in plans for  development of  mini-warehouses  are expected to further
intensify competition among mini-warehouse operators in certain market areas. In
addition to competition  from  mini-warehouses  operated by PSI, there are three

                                       5

<PAGE>

other national firms and numerous regional and local operators.  The Partnership
believes  that the  significant  operating  and  financial  experience  of PSI's
executive  officers and directors and the "Public  Storage" name,  should enable
the Partnership to continue to compete effectively with other entities.

Other Business Activities
-------------------------

         A corporation  owned by the Hughes Family  reinsures  policies  against
losses  to  goods  stored  by  tenants  in the  Mini-Warehouse  Properties.  The
Partnership  believes that the  availability of insurance  reduces the potential
liability  of the  Partnership  and the Joint  Venture to tenants  for losses to
their goods from theft or destruction.  This  corporation  receives the premiums
and bears the risks associated with the insurance.

         A corporation,  in which PSI had a 95% economic interest and the Hughes
Family has a 5% economic interest,  sells locks, boxes and tape to tenants to be
used in securing  their  spaces and moving their  goods.  PSI believes  that the
availability of locks, boxes and tape for sale promotes the rental of spaces.

Employees
---------

         There are 114 persons who render  services on behalf of the Partnership
and Joint Venture. These persons include resident managers,  assistant managers,
relief managers,  area managers,  and  administrative  personnel.  Some of these
employees may be employed on a part-time basis and may also be employed by other
persons, partnerships, REITs or other entities owning facilities operated by PSI
or PSBPLP.

Impact of Year 2000
-------------------

         PSI has completed an initial  assessment of its computer  systems.  The
majority of the computer  programs were  installed or upgraded over the past few
years and are Year 2000 compliant.  Some of the older computer programs utilized
by PSI were written without regard for Year 2000 issues and could cause a system
failure or miscalculations with possible disruption of operations. Each of these
computer  programs and systems has been  evaluated to be upgraded or replaced as
part of PSI's Year 2000 project.

         The cost of the Year 2000  project  will be  allocated  to all entities
that use the PSI computer  systems.  The cost of the Year 2000 project  which is
expected  to  be  allocated  to  the   Partnership  and  the  Joint  Venture  is
approximately $99,000. The cost of new software will be capitalized and the cost
of maintenance to existing systems will be expensed as incurred.

         The  project is  expected  to be  completed  by March 31, 1999 which is
prior to any  anticipated  impact on operating  systems.  PSI believes that with
modifications to existing software and, in some instances, the conversion to new
software,  the Year 2000 issue will not pose significant  operational  problems.
However,  if such  modifications are not made, or are not completed timely,  the
Year  2000  issue  could  have  a  material  impact  on  the  operations  of the
Partnership.

         The costs of the  project  and the date on which PSI  believes  it will
complete the Year 2000  modifications  are based on management's best estimates,
which were derived utilizing numerous assumptions of future events. There can be
no guarantee  that these  estimates  will be achieved and actual  results  could
differ materially from those anticipated.

                                       6

<PAGE>

ITEM 2.  PROPERTIES.
         -----------

         The  following  table sets forth  information  as of December 31, 1997,
about the Mini-Warehouse Properties:

<TABLE>
<CAPTION>
                                Net               Number
                              Rentable              of                Date of             Ownership
Location                    Square Feet           Spaces            Acquisition           Percentage
----------------------    ----------------    ----------------    ----------------    ----------------
CALIFORNIA
<S>                             <C>                  <C>              <C>                   <C>  
Fremont                         60,700               597              01/13/84              70.0%
   Albrae Street
Pico                            47,500               399              03/01/84              50.0
   Bermudez Street

GEORGIA
Augusta                         40,100               363              12/09/83              81.5
   Crescent Drive
Marietta                        29,600               259              03/30/84              75.0
   S. Cobb Drive

KANSAS
Olathe                          41,800               302              01/19/84              74.4
   E. Spruce
Shawnee                         64,200               418              01/19/84              74.4
   W. 63rd St.
Topeka                          50,000               368              01/19/84              74.4
   SW 41st St.
Merriam                         58,800               440              01/19/84              74.4
   W. Frontage

MARYLAND
Baltimore                       76,900               797              06/27/84             100.0
   Shannon Road
Baltimore                       48,900               531              06/27/84             100.0
   Laurel Bowie Road

MISSOURI
Belton                          42,700               358              01/19/84              74.4
   S. 71 Fwy.
Gladstone                       74,600               597              01/19/84              74.4
   N. Oak Trafficway
Independence                    78,600               530              01/19/84              74.4
   E. 31st St.
Kansas City                     73,800               541              01/19/84              74.4
   E. 112th Terrace
Kansas City                     52,200               469              01/19/84              74.4
   Holmes

NORTH CAROLINA
Charlotte                       53,900               435              12/09/83              81.5
   South Blvd.
Greensboro                      42,700               338              12/09/83              81.5
   Electra Drive

</TABLE>

                                       7

<PAGE>

<TABLE>
<CAPTION>

                                Net               Number
                              Rentable              of                Date of             Ownership
Location                    Square Feet           Spaces            Acquisition           Percentage
----------------------    ----------------    ----------------    ----------------    ----------------
NORTH CAROLINA
<S>                             <C>                  <C>              <C>                   <C>  
Greensboro                      62,200               655              12/09/83              81.5%
   W. Market St.
Raleigh                        105,700               539              05/16/84              53.0
   Departure Dr.
Raleigh                         52,400               425              12/09/83             100.0
   Yonkers Rd

OREGON
Milwaukee                       34,600               373              04/18/84             100.0
   SE McLoughlin Blvd.

PENNSYLVANIA
Philadelphia                   110,600             1,113              05/21/84              36.1
   Grant Ave.
Trevose                         61,600               743              07/03/84              67.8
   Old Lincoln Highway

RHODE ISLAND
Cranston                        28,700               300              01/24/85              64.6
   Pontiac - 71
   Freeway Dr.
N. Providence                   35,600               389              04/19/84              90.0
   Mineral Springs Ave.

SOUTH CAROLINA
Columbia                        67,200               575              12/09/83              81.5
   Broad River Rd

TENNESSEE
Knoxville                       64,000               574              02/16/84              81.9
   E. Central
   Ave. Pike
Knoxville                       97,300               796              02/16/84              81.9
   Unicorn Drive

VIRGINIA
Lorton                          55,300               561              06/27/84             100.0
   Richmond Hwy
Manassas Balls                  43,900               431              03/26/84              41.6
   Ford Rd.
Richmond                        65,600               507              12/09/83              81.5
   Jefferson Davis
Virginia Beach                  98,900               689              05/18/84             100.0
   Independence

WASHINGTON
Tacoma                          52,200               626              01/03/84              90.0
   24th St. W.

</TABLE>

                                        8

<PAGE>

         The weighted average occupancy level for the Mini-Warehouse  Properties
was 90% in 1997 compared to 91% in 1996. The monthly  average  realized rent per
square foot for the Mini-Warehouse  Properties was $.64 in 1997 compared to $.61
in 1996.

         Substantially  all of the  facilities  were acquired  prior to the time
that it was  customary  to conduct  extensive  environmental  investigations  in
connection with the property acquisitions. During the fourth quarter of 1995, an
independent environmental consulting firm completed environmental assessments on
the  Mini-Warehouse  Properties to evaluate the environmental  condition of, and
potential   environmental   liabilities  of  such   properties.   Based  on  the
assessments,  the  Partnership  believes that it is probable that costs totaling
$68,000  after  December  31,  1997 will be  incurred  for  known  environmental
remediation requirements for the Mini-Warehouse  Properties.  Although there can
be no assurance,  the  Partnership  is not aware of any unaccrued  environmental
contamination of its facilities which  individually or in the aggregate would be
material to the Partnership's overall business,  financial condition, or results
of operations.

ITEM 3.  LEGAL PROCEEDINGS.
         -----------------

         No material legal  proceeding is pending against the Partnership or the
Joint Venture.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
         ---------------------------------------------------

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of 1997.

                                       9

<PAGE>

                                     PART II

ITEM 5.  MARKET FOR  THE PARTNERSHIP'S  COMMON EQUITY  AND  RELATED  STOCKHOLDER
         -----------------------------------------------------------------------
         MATTERS.
         -------

         The Partnership has no common stock.

         The Units are not listed on any national  securities exchange or quoted
on the NASDAQ System,  and there is no established public trading market for the
Units. Secondary sales activity for the Units has been limited and sporadic. The
General Partners monitor transfers of the Units (a) because the admission of the
transferee as a substitute  limited partner  requires the consent of the General
Partners  under the  Partnership's  Amended and  Restated  Agreement  of Limited
Partnership,  (b) in order to ensure  compliance with safe harbor  provisions to
avoid  treatment  as a "publicly  traded  partnership"  for tax purposes and (c)
because PSI has  purchased  Units.  However,  the  General  Partners do not have
information regarding the prices at which all secondary sale transactions in the
Units have been effectuated.  Various  organizations  offer to purchase and sell
limited  partnership  interests  (including  securities  of the type such as the
Units) in secondary sales transactions. Various publications such as The Stanger
Report  summarize  and  report  information  (on a  monthly,  bimonthly  or less
frequent basis) regarding  secondary sales  transactions in limited  partnership
interests  (including  the Units),  including the prices at which such secondary
sales transactions are effectuated.

         Exclusive of the General Partners'  interest in the Partnership,  as of
December 31, 1997, there were approximately 1,639 record holders of Units.

         The Partnership  makes quarterly  distributions  of all "Cash Available
for  Distribution"   and  will  make   distributions  of  "Cash  from  Sales  or
Refinancing". Cash Available for Distribution is cash flow from all sources less
cash necessary for any obligations, capital improvements, or reserves.

         Reference is made to Items 6 and 7 hereof for information on the amount
of such distributions.

                                       10

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>

                                                                  For the Years Ended December 31,
                                             ----------------------------------------------------------------------------
                                                 1997            1996            1995            1994            1993
                                             ------------    ------------    ------------    ------------    ------------
                                                                (In thousands, except per Unit data)

<S>                                             <C>            <C>             <C>            <C>             <C>    
Total Revenues (d)                              $6,330         $ 7,103         $ 7,043        $ 6,531         $ 6,151

Depreciation and amortization (d)                  616           1,080             973            930             890

Income before gain on
   disposition of real estate facility
   and early extinguishment of debt (d)          4,634           4,114           4,185          3,498           2,106

Net income                                       4,634           4,114           4,185          3,722           3,053

     Limited partners' share                     4,043           3,597           3,262          3,528           2,866

     General partners' share                       591             517             923            194             187

Limited partners' per unit data(a)

     Net income                                 $ 31.59         $ 28.10         $ 25.48        $ 27.56         $ 22.39

     Cash distributions (b) (c)                 $ 38.34         $ 33.44         $ 61.97        $ 11.00         $ 11.00

As of December 31,
------------------

Cash and cash equivalents (d)                      $888          $1,075            $696         $3,003            $808

Total assets (d)                                $37,770        $ 38,850        $ 39,606        $44,225         $44,595

</TABLE>

---------------

(a)      Limited  partners'  per  Unit  data is  based  on the  number  of units
         (128,000) outstanding during the year.
(b)      The General Partners distributed, concurrent with the distributions for
         the  second and third  quarters  of 1995,  a portion  of the  operating
         reserve of the Partnership and the proceeds from the Weymouth  property
         condemnation estimated to be $13.92 and $17.40, respectively.
(c)      The General Partners distributed,  concurrent with the distribution for
         the first  quarter of 1997, a portion of the  operating  reserve of the
         Partnership estimated to be $4.90.
(d)      Restated - See Note 1 to December 31, 1997 financial statements.

                                       11

<PAGE>

ITEM 7.  MANAGEMENT'S  DISCUSSION   AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
         -----------------------------------------------------------------------
         RESULTS OF OPERATIONS.
         ---------------------

RESULTS OF OPERATIONS
---------------------

         YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996:

         The  Partnership's  net  income  was  $4,634,000  in 1997  compared  to
$4,114,000 in 1996, representing an increase of $520,000, or 12.6%. The increase
is due primarily to the  Partnership's  share of an improvement in operations of
the   mini-warehouses   in  which  the   Partnership   has  an   interest   (the
"Mini-Warehouse Properties").

         PROPERTY OPERATIONS:  Rental income for the Partnership's  wholly-owned
mini-warehouse  properties was $2,818,000 in 1997 compared to $2,715,000  during
1996,  representing  an  increase  of  $103,000,  or  3.8%.  Cost of  operations
(including  management fees) increased $37,000, or 4.1%, to $937,000 during 1997
from  $900,000  in  1996,  respectively.   Accordingly,  for  the  Partnership's
wholly-owned  mini-warehouse  properties,  net  operating  income  increased  by
$66,000, or 3.6%, from $1,815,000 in 1996 to $1,881,000 during 1997.

         As a result  of  contribution  of the  Partnership's  business  park to
PSBPLP in January  1997 in exchange  for  operating  partnership  units,  rental
income and cost of operations, respectively, for the Partnership's business park
was  reduced  to zero  and  zero,  respectively,  in 1997  from  $1,676,000  and
$857,000, respectively, in 1996.

         EQUITY IN EARNINGS OF REAL ESTATE ENTITIES:  Equity in earnings of real
estate  entities was  $3,454,000 in 1997 as compared to $2,652,000  during 1996,
representing an increase of $802,000,  or 30.2%.  The increase was due primarily
to the impact of the  contribution  of the business parks of the Partnership and
the Joint Venture to PSBPLP in January 1997.

         DEPRECIATION  AND  AMORTIZATION:  Depreciation and amortization for the
Partnership's wholly-owned properties decreased $464,000 from $1,080,000 in 1996
to $616,000 in 1997.  This decrease was primarily  attributable to the impact of
the  contribution of the  Partnership's  wholly-owned  business park facility to
PSBPLP, offset partially by additional depreciation on capital expenditures made
during 1996 and 1997.


         YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995:

         The  Partnership's  net  income  in 1996  was  $4,114,000  compared  to
$4,185,000 in 1995,  representing  a decrease of $71,000,  or 1.7%. The decrease
was  primarily  due to an  increase  in  depreciation  expense and a decrease in
interest  income,  partially  offset  by the  Partnership's  share  of  improved
property  operations at the Mini Warehouse  Properties combined with a reduction
in environmental costs.

         PROPERTY OPERATIONS:  Rental income for the Partnership's  wholly-owned
mini-warehouse  properties was $2,715,000 in 1996 compared to $2,592,000  during
1995,  representing  an  increase  of  $123,000,  or  4.7%.  Cost of  operations
(including  management fees) increased $23,000, or 2.6%, to $900,000 during 1996
from  $877,000  in  1995,  respectively.   Accordingly,  for  the  Partnership's
wholly-owned mini-warehouse properties,  property net operating income increased
by $100,000, or 5.8%, from $1,715,000 in 1995 to $1,815,000 during 1996.

         Rental  income for the  Partnership's  wholly-owned  business  park was
$1,676,000 in 1996 compared to $1,556,000 in 1995,  representing  an increase of
$120,000 or 7.7%.  Cost of  operations  (including  management  fees)  increased
$56,000,  or 7.0%, from $801,000 in 1995 to $857,000 in 1996.  Accordingly,  for
the  Partnership's  wholly-owned  business park property,  net operating  income
increased by $63,000, or 8.3%, from $755,000 in 1995 to $818,000 in 1996.

         EQUITY IN EARNINGS OF REAL ESTATE ENTITIES:  Equity in earnings of real
estate  entities was  $2,652,000 in 1996 as compared to $2,735,000  during 1995,
representing a decrease of $83,000,  or 3.0%. This decrease was due primarily to
a reduction in operating income in the Joint Venture's business park,  partially
offset by the  Partnership's  share of improved  operating  results at the Joint
Venture's mini-warehouse properties.

                                       12

<PAGE>

         DEPRECIATION   AND   AMORTIZATION:    Depreciation   and   amortization
attributable to the Partnership's  wholly-owned  properties  increased  $107,000
from  $973,000  in 1995 to  $1,080,000  in 1996.  This  increase  was  primarily
attributable to the  depreciation of capital  expenditures  made during 1995 and
1996.

SUPPLEMENTAL PROPERTY DATA
--------------------------

         In 1997, most of the Partnership's net income is from the Partnership's
share of the operating results of the Mini-Warehouse  Properties.  Therefore, in
order to evaluate the  Partnership's  operating  results,  the General  Partners
analyze the operating performance of the Mini-Warehouse Properties.

         YEAR ENDED  DECEMBER 31, 1997  COMPARED TO THE YEAR ENDED  DECEMBER 31,
1996:  Rental income for the  Mini-Warehouse  Properties was $13,617,000 in 1997
compared to $13,049,000  during 1996,  representing an increase of $568,000,  or
4.4%.  The increase in rental  income was  primarily  attributable  to increased
rental  rates,  partially  offset by decreased  average  occupancy  levels.  The
monthly average  realized rent per square foot was $.64 in 1997 compared to $.61
in 1996. The weighted average occupancy levels decreased from 91% in 1996 to 90%
in 1997. Cost of operations  (including  management fees) increased $222,000, or
4.7%, to $4,973,000  during 1997 from  $4,751,000  in 1996,  respectively.  This
increase was primarily  attributable to increases in advertising,  property tax,
and  management  expenses.   Accordingly,  for  the  Mini-Warehouse  Properties,
property net operating income increased by $346,000, or 4.2%, from $8,298,000 in
1996 to $8,644,000 during 1997.

         YEAR ENDED  DECEMBER 31, 1996  COMPARED TO THE YEAR ENDED  DECEMBER 31,
1995:  Rental income for the  Mini-Warehouse  Properties was $13,049,000 in 1996
compared to $12,564,000 in 1995,  representing an increase of $485,000, or 3.9%.
The increase in rental income was primarily  attributable  to increased  average
realized  rental rates combined with increased  average  occupancy  levels.  The
monthly average  realized rent per square foot was $.61 in 1996 compared to $.59
in 1995. The weighted average  occupancy levels were 91% in 1996 compared to 90%
in 1995. Costs of operations  (including management fees) increased $232,000, or
5.1%, to $4,751,000 in 1996 from $4,519,000 in 1995. This increase was primarily
attributable to increases in advertising and promotion, repairs and maintenance,
and office expenses.  Accordingly,  for the Mini-Warehouse Properties,  property
net operating income increased by $253,000,  or 3.1%, to $8,298,000 in 1996 from
$8,045,000 in 1995.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

         The Partnership has adequate sources of cash to finance its operations,
both on a short-term and long-term basis, primarily by internally generated cash
from property  operations and distributions from Real Estate Entities,  combined
with cash on hand at December 31, 1997 of $888,000.

         Cash flows from operating activities and distributions from Real Estate
Entities  ($5,583,000 for the year ended December 31, 1997) have been sufficient
to meet all current obligations of the Partnership.  Total capital  improvements
for the  Partnership's  wholly-owned  properties  were  $260,000,  $367,000  and
$335,000 in 1997,  1996, and 1995,  respectively.  During 1998, the  Partnership
anticipates  approximately $226,000 of capital improvements to the Partnership's
wholly-owned  properties.   During  1995,  the  Partnership's  property  manager
commenced  a program to  enhance  the visual  appearance  of the  mini-warehouse
facilities.  Such enhancements  include new signs,  exterior color schemes,  and
improvements to the rental offices.

                                       13

<PAGE>

         Total  distributions  paid to the  General  Partners  and  the  limited
partners  (including  the per Unit  amounts)  for 1997 and prior  years  were as
follows:

                                   Total                Per Unit
                              --------------         --------------
              1997              $5,507,000               $38.34
              1996               4,804,000                33.44
              1995               8,902,000                61.97
              1994               1,582,000                11.00
              1993               1,582,000                11.00
              1992               1,582,000                11.00
              1991               2,708,000                18.85
              1990               1,077,000                 7.50
              1989               4,310,000                30.00
              1988               4,309,000                30.00
              1987               4,310,000                30.00
              1986               4,669,000                32.50
              1985               5,747,000                40.00
              1984               3,239,000                22.54
 
         During 1990 and 1992,  distribution  levels were  reduced to enable the
Joint Venture to retain  operating cash flows which were used to retire mortgage
notes which were scheduled to mature in 1992, 1993 and 1994 (such mortgage notes
having balloon payments at maturity).  The 1992 distribution  includes a special
distribution  of  cash  reserves  of  approximately  $3.60  per  Unit  The  1995
distribution  includes a special distribution of cash reserves and proceeds from
the Weymouth  property  condemnation of approximately  $31.32 per Unit. The 1997
distribution  includes a special  distribution of cash reserves of approximately
$4.90  per Unit.  Future  distribution  levels  will be based  upon  cash  flows
available for distributions  (cash flows from operations and distributions  from
real estate entities, less capital improvements and necessary cash reserves).

Impact of Year 2000
-------------------

         PSI has completed an initial  assessment of its computer  systems.  The
majority of the computer  programs were  installed or upgraded over the past few
years and are Year 2000 compliant.  Some of the older computer programs utilized
by PSI were written without regard for Year 2000 issues and could cause a system
failure or miscalculations with possible disruption of operations. Each of these
computer  programs and systems has been  evaluated to be upgraded or replaced as
part of PSI's Year 2000 project.

         The cost of the Year 2000  project  will be  allocated  to all entities
that use the PSI computer  systems.  The cost of the Year 2000 project  which is
expected  to  be  allocated  to  the   Partnership  and  the  Joint  Venture  is
approximately $99,000. The cost of new software will be capitalized and the cost
of maintenance to existing systems will be expensed as incurred.

         The  project is  expected  to be  completed  by March 31, 1999 which is
prior to any  anticipated  impact on operating  systems.  PSI believes that with
modifications to existing software and, in some instances, the conversion to new
software,  the Year 2000 issue will not pose significant  operational  problems.
However,  if such  modifications are not made, or are not completed timely,  the
Year  2000  issue  could  have  a  material  impact  on  the  operations  of the
Partnership.

         The costs of the  project  and the date on which PSI  believes  it will
complete the Year 2000  modifications  are based on management's best estimates,
which were derived utilizing numerous assumptions of future events. There can be
no guarantee  that these  estimates  will be achieved and actual  results  could
differ materially from those anticipated.

                                       14

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
         -------------------------------------------

         The Partnership's  financial  statements are included elsewhere herein.
Reference is made to the Index to Financial  Statements and Financial  Statement
Schedules in Item 14(a).

ITEM 9.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
         ----------------------------------------------------

         None.

                                       15

<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP.
         ---------------------------------------------------

         The Partnership has no directors or executive officers.

         The  Partnership's  General Partners are PSI and B. Wayne Hughes.  PSI,
acting through its directors and executive  officers,  and Mr. Hughes manage and
make investment decisions for the Partnership. The Mini-Warehouse Properties are
managed by PSI pursuant to a Management  Agreement.  Through 1996,  the business
parks of the  Partnership and the Joint Venture were managed by a predecessor of
PSBPLP, pursuant to a Management Agreement. In January 1997, the Partnership and
Joint  Venture  transferred  their  business  parks to PSBPLP in exchange  for a
partnership interest in PSBPLP.

         The names of all directors  and executive  officers of PSI, the offices
held by each of them with PSI, and their ages and business experience during the
past five years are as follows:

      Name                                    Positions with PSI
------------------------    ----------------------------------------------------

B. Wayne Hughes               Chairman of the Board and Chief Executive Officer 
Harvey Lenkin                 President and Director
B. Wayne Hughes, Jr.          Vice President and Director
John Reyes                    Senior Vice President and Chief Financial Officer
Carl B. Phelps                Senior Vice President
Obren B. Gerich               Senior Vice President
Marvin M. Lotz                Senior Vice President
David Goldberg                Senior Vice President and General Counsel
A. Timothy Scott              Senior Vice President and Tax Counsel
David P. Singelyn             Vice President and Treasurer
Sarah Hass                    Vice President and Secretary
Robert J. Abernethy           Director
Dann V. Angeloff              Director
William C. Baker              Director
Thomas J. Barrack, Jr.        Director
Uri P. Harkham                Director

         B. Wayne Hughes, age 64, a general partner of the Partnership, has been
a director of PSI since its  organization in 1980 and was President and Co-Chief
Executive  Officer from 1980 until November 1991 when he became  Chairman of the
Board and sole Chief Executive  Officer.  Mr. Hughes has been active in the real
estate  investment field for over 25 years. He is the father of B. Wayne Hughes,
Jr.

         Harvey Lenkin, age 61, has been employed by PSI for 20 years and became
President  and a director of PSI in November  1991.  Mr. Lenkin is a director of
the National Association of Real Estate Investment Trusts (NAREIT).

         B. Wayne Hughes, Jr., age 38, became a director of PSI in January 1998.
He has been Vice President -  Acquisitions  of the Company since 1992. He is the
son of B. Wayne Hughes.

         John Reyes, age 37, a certified public  accountant,  joined PSI in 1990
and was  controller  of PSI from 1992 until  December  1996 when he became Chief
Financial  Officer.  He became a Vice  President  of PSI in November  1995 and a
Senior Vice President of PSI in December 1996.  From 1983 to 1990, Mr. Reyes was
employed by Ernst & Young.

         Carl B.  Phelps,  age 58,  became a  Senior  Vice  President  of PSI in
January  1998  with  overall   responsibility   for  property   acquisition  and
development.  From June 1991 until joining PSI, he was a partner in the law firm

                                       16

<PAGE>

of  Andrews & Kurth,  L.L.P.,  which  performed  legal  services  for PSI.  From
December 1982 through May 1991, his  professional  corporation  was a partner in
the law firm of Sachs & Phelps, then counsel to PSI.

         Obren B. Gerich, age 59, a certified public accountant, has been a Vice
President of PSI since 1980 and became Senior Vice  President of PSI in November
1995. He was Chief Financial Officer of PSI until November 1991.

         Marvin M.  Lotz,  age 55,  has had  overall  responsibility  for Public
Storage's  mini-warehouse  operations  since  1988.  He  became  a  Senior  Vice
President  of PSI  in  November  1995.  Mr.  Lotz  was an  officer  of PSI  with
responsibility for property acquisitions from 1983 until 1988.

         David  Goldberg,  age 48,  joined  PSI's legal  staff in June 1991.  He
became Senior Vice President and General  Counsel of PSI in November 1995.  From
December  1982  until  May  1991,  he was a  partner  in the law firm of Sachs &
Phelps, then counsel to PSI.

         A.  Timothy  Scott,  age 46,  became a Senior  Vice  President  and Tax
Counsel of PSI and Vice President and Tax Counsel of the Public Storage REITs in
November 1996.  From June 1991 until joining PSI, Mr. Scott practiced tax law as
a shareholder of the law firm of Heller,  Ehrman, White & McAuliffe,  counsel to
PSI. Prior to June 1991, his  professional  corporation was a partner in the law
firm of Sachs & Phelps, then counsel to PSI.

         David P.  Singelyn,  age 36, a certified  public  accountant,  has been
employed by PSI since 1989 and became Vice  President  and  Treasurer  of PSI in
November  1995.  From 1987 to 1989,  Mr.  Singelyn was  Controller of Winchell's
Donut Houses, L.P.

         Sarah Hass,  age 42,  became  Secretary  of PSI in February  1992.  She
became  a Vice  President  of PSI in  November  1995.  She  joined  PSI's  legal
department  in June 1991,  rendering  services on behalf of PSI. From 1987 until
May 1991, her professional  corporation was a partner in the law firm of Sachs &
Phelps,  then  counsel to PSI,  and from  April  1986  until June 1987,  she was
associated  with that  firm,  practicing  in the area of  securities  law.  From
September 1979 until  September  1985, Ms. Hass was associated with the law firm
of Rifkind & Sterling, Incorporated.

         Robert J.  Abernethy,  age 58, has been President of American  Standard
Development Company and of Self-Storage  Management  Company,  which develop and
operate mini-warehouses,  since 1976 and 1977,  respectively.  Mr. Abernethy has
been a director  of PSI since its  organization  in 1980.  He is a member of the
board of directors of Johns  Hopkins  University  and of the Los Angeles  County
Metropolitan  Transportation  Authority  and a  former  member  of the  board of
directors of the Metropolitan Water District of Southern California.

         Dann V. Angeloff, age 62, has been President of the Angeloff Company, a
corporate  financial  advisory  firm,  since  1976.  The  Angeloff  Company  has
rendered,  and is  expected  to  continue  to  render,  financial  advisory  and
securities  brokerage services for PSI. Mr. Angeloff is the general partner of a
limited partnership that owns a mini-warehouse operated by PSI and which secures
a note  owned  by PSI.  Mr.  Angeloff  has  been a  director  of PSI  since  its
organization  in 1980. He is a director of Compensation  Resource  Group,  Eagle
Lifestyle   Nutrition,    Inc.,    Nicholas/Applegate    Growth   Equity   Fund,
Nicholas/Applegate  Investment Trust,  ReadyPac Produce,  Inc. and Royce Medical
Company.

         William C. Baker,  age 64,  became a director of PSI in November  1991.
Since  November  1997,  Mr.  Baker  has been  Chairman  of the  Board  and Chief
Executive  Officer of The Santa Anita Companies,  Inc., which operates the Santa
Anita Racetrack and is a wholly-owned subsidiary of Meditrust Operating Company.
From August 1996 until  November  1997,  he was  Chairman of the Board and Chief
Executive  Officer of Santa Anita Operating Company and Chairman of the Board of
the Board of Santa Anita Realty  Enterprises,  Inc.,  the  companies  which were
merged with  Meditrust in November  1992.  From April 1993 through May 1995, Mr.
Baker was President of Red Robin International, Inc., an operator and franchiser
of casual dining restaurants in the United States and Canada.  From January 1992
through  December 1995, he was Chairman and Chief Executive  Officer of Carolina
Restaurant  Enterprises,  Inc., a franchisee  of Red Robin  International,  Inc.
Since 1991,  he has been Chairman of the Board of Coast  Newport  Properties,  a
real estate brokerage company. From 1976 to 1988, he was a principal shareholder

                                       17

<PAGE>

and  Chairman and Chief  Executive  Officer of Del Taco,  Inc.,  an operator and
franchiser of fast food  restaurants in  California.  Mr. Baker is a director of
Callaway Golf Company and Meditrust Operating Company.

         Thomas J.  Barrack,  Jr., age 50,  became a director of PSI in February
1998.  Mr. Barrack has been the Chairman and Chief  Executive  Officer of Colony
Capital,  Inc. since September 1991. Colony Capital,  Inc. is one of the largest
real estate investors in America, having acquired properties in the U.S., Europe
and Asia. Prior to founding Colony Capital, Inc., from 1987 to 1991, Mr. Barrack
was a principal with the Robert M. Bass Group,  Inc.,  the principal  investment
vehicle for Robert M. Bass of Fort Worth,  Texas. From 1985 to 1987, Mr. Barrack
was President of Oxford Ventures, Inc., a Canadian-based real estate development
company.  From  1984 to  1985,  he was  Senior  Vice  President  at E.F.  Hutton
Corporate  Finance in New York.  Mr.  Barrack was appointed by President  Ronald
Reagan as Deputy Under  Secretary at the U.S.  Department  of the Interior  from
1982 to 1983. Mr. Barrack currently is a director of Continental Airlines,  Inc.
and Virgin Entertainment Group, Ltd.

         Uri P.  Harkham,  age 49,  became a director of PSI in March 1993.  Mr.
Harkham  has been the  President  and Chief  Executive  Officer of the  Jonathan
Martin  Fashion  Group,  which  specializes  in  designing,   manufacturing  and
marketing  women's  clothing,  since its  organization in 1976.  Since 1978, Mr.
Harkham has been the Chairman of the Board of Harkham Properties,  a real estate
firm  specializing in buying and managing fashion  warehouses in Los Angeles and
Australia.

         Pursuant to Articles 16 and 17 of the Partnership's Amended Certificate
and Agreement of Limited  Partnership (the "Partnership  Agreement"),  a copy of
which is included in the Partnership's  prospectus included in the Partnership's
Registration Statement, File No. 2-86355, each of the General Partners continues
to serve until (i) death, insanity, insolvency,  bankruptcy or dissolution, (ii)
withdrawal  with the consent of the other general partner and a majority vote of
the  limited  partners,  or (iii)  removal  by a  majority  vote of the  limited
partners.

         Each  director of PSI serves until he resigns or is removed from office
by PSI,  and may  resign or be removed  from  office at any time with or without
cause. Each officer of PSI serves until he resigns or is removed by the board of
directors  of PSI.  Any such officer may resign or be removed from office at any
time with or without cause.

         There  have  been no events  under  any  bankruptcy  act,  no  criminal
proceedings,  and no judgments or injunctions  material to the evaluation of the
ability of any director or executive officer of PSI during the past five years.

ITEM 11. EXECUTIVE COMPENSATION.
         -----------------------

         The Partnership has no subsidiaries, directors or officers. See Item 13
for a  description  of certain  transactions  between  the  Partnership  and the
General Partners and their affiliates.

                                       18

<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
         --------------------------------------------------------------

         (a)      At  December 31, 1997,  PSI  beneficially  owned more  than 5%
                  of the Units of the Partnership:

   Title                                               Amount of         Percent
    of                   Name and Address of           Beneficial          of
   Class                  Beneficial Owner             Ownership          Class
--------------------   ----------------------------   ----------------   -------
Units of               Public Storage, Inc.
Limited                701 Western Avenue
Partnership Interest   Glendale, CA 91201-2394  (1)   94,474 Units (1)   73.81%

----------------------

(1)      These   Units  are  held  of  record  by  SEI   Arlington   Acquisition
         Corporation, a wholly-owned subsidiary of PSI.

                  The Partnership is not aware of any other beneficial owners of
more than 5% of the Units.

         (b)      The Partnership has no officers and directors.

                  The General Partners (or their  predecessor-in-interest)  have
         contributed $646,000 to the capital of the Partnership  representing 1%
         of the aggregate capital  contributions and as a result  participate in
         the  distributions  to the limited  partners  and in the  Partnership's
         profits and losses in the same  proportion  that the general  partners'
         capital   contribution   bears  to  the  total  capital   contribution.
         Information  regarding  ownership  of  the  Units  by  PSI , a  General
         Partner,  is set forth  under  section  (a) above.  The  directors  and
         executive officers of PSI , as a group, do not own any Units.

         (c) The Partnership knows of no contractual arrangements, the operation
         of the terms of which may at a  subsequent  date  result in a change in
         control of the Partnership,  except for articles 16, 17 and 21.1 of the
         Partnership's Amended Certificate and Agreement of Limited Partnership,
         a copy of which is included in the Partnership's prospectus included in
         the  Partnership's  Registration  Statement  File  No.  2-86355.  Those
         articles  provide,  in substance,  that the limited partners shall have
         the right,  by majority  vote,  to remove a general  partner and that a
         general partner may designate a successor with the consent of the other
         general partner and a majority of the limited partners.

                  The Partnership owns interests in 33 properties (which exclude
         the  properties  transferred  to PSBPLP in  January  1997);  27 of such
         properties  are  held  in  a  general  partnership   comprised  of  the
         Partnership  and PSI.  Under  the  terms of the  partnership  agreement
         relating  to the  ownership  of the  properties,  PSI has the  right to
         compel a sale of each  property  at any time after seven years from the
         date of acquisition at not less than its independently  determined fair
         market  value  provided the  Partnership  receives its share of the net
         sales  proceeds  solely in cash.  As of December 31, 1997,  PSI has the
         right to require  the  Partnership  to sell all of the Joint  Venture's
         properties on these terms.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
         ----------------------------------------------

         The Partnership  Agreement provides that the General Partners and their
affiliates are entitled to the following compensation:

         1.   Incentive distributions equal to 10% of Cash Flow from Operations.

         2.   Provided the limited partners have received distributions equal to
              100% of  their  investment  plus a  cumulative  8% per  year  (not
              compounded) on their investment  (reduced by  distributions  other
              than  from  Cash Flow  from  Operations),  subordinated  incentive
              distributions  equal  to 15%  of  remaining  Cash  from  Sales  or
              Refinancings.

                                       19

<PAGE>

         3.   Provided the limited partners have received distributions equal to
              100% of their capital  contributions plus a cumulative 6% per year
              (not  compounded) on their  investment  (reduced by  distributions
              other  than   distributions   from  Cash  Flow  from  Operations),
              brokerage  commissions at the lesser of 3% of the sales price of a
              property or 50% of a competitive commission.

         During  1997,  approximately  $551,000  was paid to PSI with respect to
items 1, 2, and 3 above. The Partnership owns interests in 33 properties  (which
exclude  the  properties  transferred  to PSBPLP in  January  1997);  27 of such
properties are held in a general  partnership  comprised of the  Partnership and
PSI.

         The Partnership and the Joint Venture have a Management  Agreement with
PSI pursuant to which the  Partnership and the Joint Venture pay PSI a fee of 6%
of the gross revenues of the mini-warehouse  spaces operated for the Partnership
and the Joint Venture.  During 1997, the  Partnership and the Joint Venture paid
fees of $817,000 to PSI pursuant to the Management Agreement.

         Through 1996, the Partnership's and Joint Venture's business parks were
managed by a  predecessor  of PSBPLP  pursuant to a Management  Agreement  which
provides for the payment of a fee by the Partnership of 5% of the gross revenues
of the commercial  space operated for the Partnership and the Joint Venture.  In
January 1997,  the  Partnership,  the Joint  Venture,  and PSI and other related
partnerships  transferred a total of 35 business  parks to PSBPLP,  an operating
partnership  formed  to own  and  operate  business  parks  in  which  PSI has a
significant  interest.  Included  among  the  properties  transferred  were  the
Partnership's  and Joint Venture's  business parks in exchange for a partnership
interest in PSBPLP.  The general partner of PSBPLP is PS Business Parks, Inc., a
REIT traded on the American Stock Exchange.

                                       20

<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
         ---------------------------------------------------------------

         (a)  List of Documents filed as part of the Report.

              1.   Financial  Statements:  See Index to Financial Statements and
                   Financial Statement Schedules.

              2.   Financial  Statement   Schedules:   See  Index  to  Financial
                   Statements and Financial Statement Schedules.

              3.   Exhibits: See Exhibit Index contained herein.

         (b)  Reports on Form 8-K:

                  None

         (c)  Exhibits: See Exhibit Index contained herein.

                                       21

<PAGE>

                              PS PARTNERS II, LTD.
                                INDEX TO EXHIBITS


3.1      Amended  Certificate and Agreement of Limited  Partnership.  Previously
         filed with the Securities  and Exchange  Commission as Exhibit A to the
         Partnership's Prospectus included in Registration Statement No. 2-86355
         and incorporated herein by reference.

10.1     Second  Amended and Restated  Management  Agreement  dated November 16,
         1995,  between the  Partnership  and Public  Storage  Management,  Inc.
         Previously  filed with the  Securities  and Exchange  Commission  as an
         exhibit to PS Partners,  Ltd.'s Annual Report on Form 10-K for the year
         ended December 31, 1996 and incorporated herein by reference.

10.2     Amended  Management  Agreement  dated February 21, 1995 between Storage
         Equities,  Inc. and Public Storage  Commercial  Properties  Group, Inc.
         Previously  filed with the  Securities  and Exchange  Commission  as an
         exhibit to the  Partnership's  Annual  Report on Form 10-K for the year
         ended December 31, 1994 and incorporated herein by reference.

10.3     Participation  Agreement  dated as of November 9, 1984,  among  Storage
         Equities,  Inc. the Partnership,  Public Storage, Inc., B. Wayne Hughes
         and  Kenneth Q. Volk,  Jr.  Previously  filed with the  Securities  and
         Exchange  Commission  as an exhibit to Storage  Equities,  Inc.  Annual
         Report  on  Form  10-K  for  the  year  ended  December  31,  1983  and
         incorporated herein by reference.

27       Financial data schedule, Filed herewith.

                                       22

<PAGE>

                                   SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the  Partnership  has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.


                                    PS PARTNERS II, LTD.


Dated:  March 10, 1999         By:  Public Storage, Inc., General Partner

                               By:  /s/ John Reyes
                                    --------------------------------------------
                                    John Reyes
                                    Senior Vice President and Chief 
                                    Financial Officer of Public Storage, Inc.
                                    (principal financial and accounting officer)

                                       23

<PAGE>

                          INDEX TO FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULES

                                  (Item 14 (a))

                                                                        Page
                                                                     References
                                                                     ----------
PS PARTNERS II, LTD.
     Report of Independent Auditors                                      F-1

     Financial Statements and Schedules:

       Balance  Sheets as of December  31, 1997 and 1996                 F-2 

       For the years ended December 31, 1997, 1996 and 1995:

          Statements of Income                                           F-3

          Statements of Partners' Equity                                 F-4

          Statements of Cash Flows                                    F-5 - F-6

     Notes to Financial Statements                                   F-7 - F-11

     Schedule

          Schedule III - Real Estate and Accumulated Depreciation    F-12 - F-13

Financial  Statements of 50 percent or less owned persons  required  pursuant to
Rule 3-09:

     PS BUSINESS PARKS,  INC. - PS Business Parks, Inc. is a registrant with the
     Securities and Exchange  Commission and its filings can be accessed through
     the Securities and Exchange Commission.

     SEI/PSP II JOINT VENTURES

         Report of Independent Auditors                                 F-14

         Financial Statements:

         Balance Sheets as of December 31, 1997 and 1996                F-15

           For the years ended December 31, 1997, 1996 and 1995:

              Statements of Income                                      F-16
 
              Statements of Partners' Equity                            F-17

              Statements of Cash Flows                               F-18 - F-19

         Notes to Financial Statements                               F-20 - F-23

         Schedule

              Schedule III - Real Estate and Accumulated Depreciatio F-24 - F-26

         All other schedules have been omitted since the required information is
not present or not present in amounts  sufficient  to require  submission of the
schedule,  or because the  information  required  is  included in the  financial
statements or the notes thereto.

                                       24

<PAGE>

                         Report of Independent Auditors




The Partners
PS Partners II, Ltd.


We have  audited the balance  sheets of PS Partners  II, Ltd. as of December 31,
1997 and 1996 and the related  statements of income,  partners'  equity and cash
flows for each of the three years in the period ended  December  31,  1997.  Our
audits also included the  financial  statement  schedule  listed in the Index at
Item 14(a).  These financial  statements and schedule are the  responsibility of
the  Partnership's  management.  Our  responsibility is to express an opinion on
these financial statements and schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of PS  Partners  II, Ltd. at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.

As discussed in Note 1, the financial  statements  have been restated to account
for certain joint ventures  previously  consolidated  by the  Partnership on the
equity method.





                                                              ERNST & YOUNG LLP

February 23, 1998
Los Angeles, CA

                                      F-1

<PAGE>

                              PS PARTNERS II, LTD.
                                 BALANCE SHEETS
                             (Restated - See Note 1)
                           December 31, 1997 and 1996

<TABLE>
<CAPTION>

                                                                                          1997               1996
                                                                                   --------------------------------------

                                      ASSETS


<S>                                                                                      <C>                 <C>       
Cash and cash equivalents                                                                   $888,000          $1,075,000

Rent and other receivables                                                                    33,000              76,000

Real estate facilities, at cost:
     Land                                                                                  2,319,000           6,640,000
     Buildings and equipment                                                              12,584,000          21,400,000
                                                                                   --------------------------------------
                                                                                          14,903,000          28,040,000

         Less accumulated depreciation                                                    (6,728,000)        (10,970,000)
                                                                                   --------------------------------------
                                                                                           8,175,000          17,070,000

Investment in real estate entities                                                        28,599,000          20,564,000

Other assets                                                                                  75,000              65,000
                                                                                   --------------------------------------

                                                                                         $37,770,000         $38,850,000
                                                                                   ======================================


                         LIABILITIES AND PARTNERS' EQUITY


Accounts payable                                                                             $26,000            $228,000

Advance payments from renters                                                                 74,000              79,000

Partners' equity:
     Limited partners' equity,  $500 per unit, 128,000
         units authorized, issued and outstanding                                         37,211,000          38,077,000
     General partner's equity                                                                459,000             466,000
                                                                                   --------------------------------------

Total partners' equity                                                                    37,670,000          38,543,000
                                                                                   --------------------------------------

                                                                                         $37,770,000         $38,850,000
                                                                                   ======================================
</TABLE>

                            See accompanying notes.
                                      F-2

<PAGE>

                              PS PARTNERS II, LTD.
                              STATEMENTS OF INCOME
                             (Restated - See Note 1)
              For the years ended December 31, 1997, 1996, and 1995

<TABLE>
<CAPTION>

                                                                         1997              1996              1995
                                                                   -----------------------------------------------------

REVENUE:

<S>                                                                      <C>               <C>               <C>       
Rental income                                                            $2,818,000        $4,391,000        $4,148,000
Equity in earnings of real estate entities                                3,454,000         2,652,000         2,735,000
Interest income                                                              58,000            60,000           160,000
                                                                   -----------------------------------------------------
                                                                          6,330,000         7,103,000         7,043,000
                                                                   -----------------------------------------------------

COSTS AND EXPENSES:

Cost of operations                                                          768,000         1,510,000         1,444,000
Management fees                                                             169,000           247,000           234,000
Depreciation and amortization                                               616,000         1,080,000           973,000
Administrative                                                              143,000           152,000           159,000
Environmental costs                                                               -                 -            48,000
                                                                   -----------------------------------------------------
                                                                          1,696,000         2,989,000         2,858,000
                                                                   -----------------------------------------------------


                                                                   -----------------------------------------------------
NET INCOME                                                               $4,634,000        $4,114,000        $4,185,000
                                                                   =====================================================

Limited partners' share of net income
     ($31.59, $28.10, and $25.48 per unit in
     1997, 1996, and 1995, respectively)                                 $4,043,000        $3,597,000        $3,262,000
General partner's share of net income                                       591,000           517,000           923,000
                                                                   -----------------------------------------------------
                                                                         $4,634,000        $4,114,000        $4,185,000
                                                                   =====================================================
</TABLE>
                            See accompanying notes.
                                      F-3

<PAGE>

                              PS PARTNERS II, LTD.
                         STATEMENTS OF PARTNERS' EQUITY
              For the years ended December 31, 1997, 1996, and 1995

<TABLE>
<CAPTION>

                                                                       Limited           General
                                                                       Partners          Partners           Total
                                                                   -----------------------------------------------------

<S>                                                                    <C>                 <C>             <C>        
Balances at December 31, 1994                                          $43,430,000         $520,000        $43,950,000

Net income                                                               3,262,000          923,000          4,185,000

Distributions                                                           (7,932,000)        (970,000)        (8,902,000)

                                                                   -----------------------------------------------------
Balances at December 31, 1995                                           38,760,000          473,000         39,233,000

Net income                                                               3,597,000          517,000          4,114,000

Distributions                                                           (4,280,000)        (524,000)        (4,804,000)

                                                                   -----------------------------------------------------
Balances at December 31, 1996                                           38,077,000          466,000         38,543,000

Net income                                                               4,043,000          591,000          4,634,000

Distributions                                                           (4,909,000)        (598,000)        (5,507,000)
                                                                   -----------------------------------------------------

Balances at December 31, 1997                                          $37,211,000         $459,000        $37,670,000
                                                                   =====================================================
</TABLE>
                            See accompanying notes.
                                      F-4

<PAGE>

                              PS PARTNERS II, LTD.
                            STATEMENTS OF CASH FLOWS
                             (Restated - See Note 1)
              For the years ended December 31, 1997, 1996, and 1995

<TABLE>
<CAPTION>

                                                                              1997            1996            1995
                                                                        -------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:

<S>                                                                        <C>             <C>             <C>       
Net income                                                                 $4,634,000      $4,114,000      $4,185,000

     Adjustments to reconcile net income to net cash
         provided by operating activities

         Depreciation and amortization                                         616,000        1,080,000         973,000
         Decrease (increase) in rent and other receivables                      43,000           (2,000)        (55,000)
         Increase in other assets                                              (10,000)         (25,000)         (1,000)
         (Decrease) increase in accounts payable                              (202,000)         (61,000)         95,000
         (Decrease) increase in advance payments from renters                   (5,000)          (5,000)          3,000
         Equity in earnings of real estate entities                         (3,454,000)      (2,652,000)     (2,735,000)

                                                                        -------------------------------------------------
          Total adjustments                                                 (3,012,000)      (1,665,000)     (1,720,000)

                                                                        -------------------------------------------------
              Net cash provided by operating activities                      1,622,000        2,449,000       2,465,000
                                                                        -------------------------------------------------

CASH FLOWS PROVIDED BY  INVESTING ACTIVITIES:

         Investment in real estate entities                                     (3,000)               -               -
         Distributions from real estate entities                             3,961,000        3,101,000       4,465,000
         Additions to real estate facilities                                  (260,000)        (367,000)       (335,000)
                                                                        -------------------------------------------------
              Net cash provided by  investing activities                     3,698,000        2,734,000       4,130,000
                                                                        -------------------------------------------------

CASH FLOWS USED IN FINANCING ACTIVITIES:

         Distributions to partners                                          (5,507,000)      (4,804,000)     (8,902,000)
                                                                        -------------------------------------------------
              Net cash used in financing activities                         (5,507,000)      (4,804,000)     (8,902,000)
                                                                        -------------------------------------------------

Net (decrease) increase in cash and cash equivalents                          (187,000)         379,000      (2,307,000)
Cash and cash equivalents at the beginning of the period                     1,075,000          696,000       3,003,000
                                                                        -------------------------------------------------

Cash and cash equivalents at the end of the period                            $888,000       $1,075,000        $696,000
                                                                        =================================================
</TABLE>
                            See accompanying notes.
                                      F-5

<PAGE>

                              PS PARTNERS II, LTD.
                            STATEMENTS OF CASH FLOWS
                             (Restated - See Note 1)
              For the years ended December 31, 1997, 1996, and 1995
                                   (Continued)

<TABLE>
<CAPTION>

                                                                                   1997           1996         1995
                                                                              -------------------------------------------


Supplemental schedule of noncash investing and financing activities:


     <S>                                                                        <C>                  <C>          <C>
     Investment in Real Estate Entities                                         $(8,539,000)         $-           $-

     Transfer of real estate facilities for interest in Real Estate
     Entities, net                                                                8,539,000           -            -

</TABLE>
                            See accompanying notes.
                                      F-6

<PAGE>

                              PS PARTNERS II, LTD.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1997


1.       Summary of Significant Accounting Policies and Partnership Matters
         ------------------------------------------------------------------

         Description of Partnership
         --------------------------

                  PS Partners II, Ltd. (the  "Partnership")  was formed with the
         proceeds  of  an  interstate   public  offering.   PSI  Associates  II,
         Inc.("PSA"), an affiliate of Public Storage Management, Inc., organized
         the  Partnership  along with B. Wayne Hughes  ("Hughes").  In September
         1993, Storage Equities,  Inc., now known as Public Storage,  Inc. ("PSI
         ") acquired the interest of PSA relating to its general partner capital
         contribution  in the  Partnership  and was  substituted as a co-general
         partner in place of PSA.

                  In 1995,  there was a series of mergers  among Public  Storage
         Management, Inc. (which was the Partnership's mini-warehouse operator),
         Public  Storage,  Inc.  and their  affiliates  (collectively,  "PSMI"),
         culminating in the November 16, 1995 merger (the "PSMI Merger") of PSMI
         into Storage Equities,  Inc. In the PSMI Merger, Storage Equities, Inc.
         was renamed Public Storage,  Inc. and it acquired  substantially all of
         PSMI's United States real estate  operations and became the operator of
         the mini-warehouse properties that the Partnership has an interest in.

                  The  Partnership  has  invested  in  existing   mini-warehouse
         storage facilities which offer  self-service  storage spaces for lease,
         usually on a  month-to-month  basis,  to the  general  public and, to a
         lesser  extent,  in  existing  business  park  facilities  which  offer
         industrial and office space for lease.

                  The Partnership has ownership interests in 33 properties in 12
         states, which excludes two properties transferred to PS Business Parks,
         L.P.  ("PSBPLP")  in January 1997.  27 of the  properties  are owned by
         SEI/PSP II Joint Ventures (the "Joint Venture"),  a general partnership
         between  the  Partnership  and PSI.  The  Partnership  is the  managing
         general partner of the Joint Venture,  with ownership  interests in the
         individual properties of the Joint Venture ranging from 36% to 90%.

                  As used hereinafter, the Joint Venture and PSBPLP are referred
         to as the "Real Estate Entities."

         Basis of Presentation
         ---------------------

                  The   financial   statements   include  the  accounts  of  the
         Partnership.  The accounts of the Joint Venture,  which the Partnership
         does not control,  are not  consolidated  with the  Partnership and the
         Partnership's  interest in the Joint  Venture is  accounted  for on the
         equity method.

                  The Partnership does not control the Joint Venture because PSI
         has  significant  control  rights with respect to the management of the
         properties,  including the right to compel the sale of each property in
         the Joint  Venture and the right to require the  Partnership  to submit
         operating budgets.

                  Previously,  the Partnership consolidated the Joint Venture in
         its financial  statements.  The accompanying  financial  statements for
         1997,  1996,  and 1995 have been restated to  de-consolidate  the Joint
         Venture.  This  restatement  had no impact upon net income or Partner's
         Equity. The primary impact of this change was to reduce total assets by
         $15,482,000 and $15,708,000 in 1997 and 1996,  respectively;  the total
         of minority  interest and liabilities was reduced by the  corresponding
         same amount in each period.  Total  revenues  decreased by  $8,039,000,
         $8,353,000, and $8,045,000,  respectively,  in the years ended December
         31, 1997, 1996, and 1995, respectively;  the total of minority interest
         in income and expenses were reduced by the corresponding same amount in
         each period.

                                      F-7

<PAGE>

1.       Summary of  Significant  Accounting  Policies and  Partnership  Matters
         -----------------------------------------------------------------------
         (Continued)
         -----------

                  Under the terms of the general  partnership  agreement  of the
         Joint Venture all depreciation  and  amortization  with respect to each
         property  is  allocated  solely to the  Partnership  until the  limited
         partners recover their initial capital  contribution.  Thereafter,  all
         depreciation  and  amortization  is  allocated  solely  to PSI until it
         recovers its initial capital contribution.  All remaining  depreciation
         and  amortization is allocated to the Partnership and PSI in proportion
         to their ownership percentages.

         Under  the  terms of the  general  partnership  agreement  of the Joint
         Venture,  for  property  acquisitions  in which PSI issued  convertible
         securities  to the sellers for its  interest,  PSI 's rights to receive
         cash flow  distributions  from the  partnerships for any year after the
         first year of operation are  subordinated to cash  distributions to the
         Partnership equal to a cumulative annual 7% of its cash investment (not
         compounded).   These   agreements   also  specify  that  upon  sale  or
         refinancing  of a property for more than its original  purchase  price,
         distribution  of proceeds to PSI is  subordinated  to the return to the
         Partnership   of  the  amount  of  its  cash   investment  and  the  7%
         distribution described above.

         Depreciation and amortization
         -----------------------------

                  The Partnership and the Joint Venture depreciate the buildings
         and equipment on a straight-line  method over estimated useful lives of
         25 and 5 years, respectively.  Leasing commissions relating to business
         park properties are expensed when incurred.

         Revenue Recognition
         -------------------

                  Property rents are recognized as earned.

         Allocation of Net Income
         ------------------------

                  The  General  Partners'  share of net  income  consists  of an
         amount attributable to their 1% capital  contribution and an additional
         percentage  of cash flow (as defined,  see Note 4) which relates to the
         General  Partners'  share  of cash  distributions  as set  forth in the
         Partnership  Agreement.  All  remaining  net income is allocated to the
         limited partners.

         Per Unit Data
         -------------

                  Per unit data is based on the  number of  limited  partnership
         units (128,000) outstanding during the year.

         Cash Distributions
         ------------------

                  The Partnership Agreement provides for quarterly distributions
         of cash flow from operations (as defined).  Cash distributions per unit
         were $38.34 for 1997, $33.44 for 1996 and $61.97 for 1995.

         Cash and Cash Equivalents
         -------------------------

                  For financial  statement purposes,  the Partnership  considers
         all highly liquid investments purchased with a maturity of three months
         or less to be cash equivalents.

                                       F-8

<PAGE>

1.       Summary of  Significant  Accounting  Policies and  Partnership  Matters
         -----------------------------------------------------------------------
         (Continued)
         -----------

         Environmental Cost
         ------------------

                  Substantially  all of the real estate  facilities in which the
         Partnership has an interest were acquired prior to the time that it was
         customary  to  conduct   extensive   environmental   investigations  in
         connection with the property acquisitions. During the fourth quarter of
         1995,  an   independent   environmental   consulting   firm   completed
         environmental  assessments on the properties of the Partnership and the
         Joint Venture to evaluate the environmental condition of, and potential
         environmental liabilities of such properties. Based on the assessments,
         the  Partnership  believes that after  December 31, 1997 it is probable
         that the  Mini-Warehouse  Properties will incur costs totaling $68,000.
         During 1997, 1996, and 1995, the Partnership and the Joint Venture paid
         none,   $12,000,   and  $44,000,   respectively,   in  connection  with
         environmental  remediations.  Although  there can be no assurance,  the
         Partnership is not aware of any unaccrued  environmental  contamination
         of the Mini-Warehouse Properties which individually or in the aggregate
         would be  material to the  Partnership's  overall  business,  financial
         condition, or results of operations.

         Use of Estimates
         ----------------

                  The preparation of the financial statements in conformity with
         generally accepted  accounting  principles  requires management to make
         estimates  and  assumptions  that  affect the  amounts  reported in the
         financial  statements  and  accompanying  notes.  Actual  results could
         differ from those estimates.

2.       Real Estate Facilities
         ----------------------

                  In 1995,  the  Financial  Accounting  Standards  Board  issued
         Statement of Financial  Accounting Standards No. 121 ("Statement 121"),
         "Accounting for the Impairment of Long-Lived  Assets and for Long-Lived
         Assets to be Disposed of." Statement 121 requires  impairment losses to
         be recorded on long-lived  assets used in operations when indicators of
         impairment are present and the undiscounted  cash flows estimated to be
         generated  by those assets are less than the assets'  carrying  amount.
         Statement 121 also  addresses the method of accounting  for  long-lived
         assets  that are  expected  to be  disposed.  The  Partnership  adopted
         Statement 121 in 1996 and the adoption had no effect.

                  In January  1997,  the  Partnership  and PSI and other related
         partnerships  transferred  a total of 35 business  parks to PSBPLP,  an
         operating partnership formed to own and operate business parks in which
         PSI  has  a  significant   interest.   Included  among  the  properties
         transferred  was the  Partnership's  business  park in  exchange  for a
         partnership  interest in PSBPLP.  The  general  partner of PSBPLP is PS
         Business Parks, Inc. ("PSB").

3.       Investment in real estate entities
         ----------------------------------

                 During  1997,  1996,  and  1995,  the  Partnership   recognized
         earnings from the Real Estate Entities of $3,454,000,  $2,652,000,  and
         $2,735,000,  respectively,  and received  cash  distributions  totaling
         $3,961,000,  $3,101,000,  and  $4,465,000,  respectively  from the Real
         Estate Entities.

                                      F-9

<PAGE>


3.       Investment in real estate entities (Continued)
         ----------------------------------------------

                  In  November  1994,  the  Massachusetts   Bay   Transportation
         Authority  exercised its right of eminent domain and took possession of
         the mini-warehouse  located in Weymouth,  Massachusetts which was owned
         jointly by the Partnership and PSI. This Joint Venture received initial
         condemnation  proceeds of  approximately  $1,910,000,  resulting in the
         recognition  of a gain on  disposition  of real  estate  facilities  of
         $224,000.

                  The  Partnership  is  presently  contesting  the amount of the
         initial condemnation proceeds,  however, there is no assurance that the
         Partnership will obtain additional condemnation proceeds.

                  The  accounting  policies  of the  Real  Estate  Entities  are
         similar to that of the Partnership.  Summarized combined financial data
         with respect to the Real Estate Entities are as follows:

                                                       1997             1996
                                                  --------------  --------------

For the year ended December 31,
    Total revenues                                 $ 42,564,000    $ 11,005,000
    Minority interest in income                       8,566,000               -
    Net income                                        8,515,000       4,289,000

At December 31,
    Total assets, net of accumulated depreciation   358,698,000      36,272,000
    Total liabilities                                12,347,000         639,000
    Total minority interest                         168,665,000               -
    Total equity                                    177,686,000      35,632,000

                 The increase in the size of the combined financial position and
         operating  results,  respectively,  of the Real Estate Entities for the
         year ended December 31, 1997 and at December 31, 1997, respectively, as
         compared to prior  periods,  is the result of the January 1997 transfer
         of business  parks owned by the Joint  Venture and the  Partnership  to
         PSBPLP, which was formed to own and operate business parks.

                 Financial  statements  of the Joint  Venture are filed with the
         Partnership's  Form 10-K for 1997, in Item 14. PS Business Parks,  Inc.
         is a registrant  with the Securities and Exchange  Commission,  and its
         filings can be accessed through the Securities and Exchange Commission.

4.       General Partners' Equity
         ------------------------

                  The General Partners have a 1% interest in the Partnership. In
         addition,   the  General   Partners   have  a  10%   interest  in  cash
         distributions  attributable to operations,  exclusive of  distributions
         attributable to sales and refinancing proceeds.

                  Proceeds  from  sales  and  refinancings  will be  distributed
         entirely to the limited  partners  until the limited  partners  recover
         their  investment plus a cumulative 8% annual return (not  compounded);
         thereafter,  the General  Partners  have a 15%  interest  in  remaining
         proceeds.

                                      F-10

<PAGE>

5.       Related Party Transactions
         --------------------------

                  The  Partnership  has a management  agreement with PSI whereby
         PSI operates the Mini-Warehouse Properties for a fee equal to 6% of the
         facilities' monthly gross revenue (as defined).

                  In  January  1997,  the  Partnership  and  the  Joint  Venture
         transferred  their business park facilities to PSBPLP in exchange for a
         partnership interest in PSBPLP.

                  PSI has a significant economic interest in PSBPLP and PSBP.

6.       Leases
         ------

                  The   Partnership   has   invested   primarily   in   existing
         mini-warehouse  storage  facilities  which offer  self-service  storage
         spaces  for lease to the  general  public.  Leases  for such  space are
         usually on a month-to-month basis.

7.       Taxes Based on Income
         ---------------------

                  Taxes based on income are the responsibility of the individual
         partners and,  accordingly,  the Partnership's  financial statements do
         not reflect a provision for such taxes.

                   Unaudited  taxable net income was $6,509,000,  $2,637,000 and
         $4,068,000  for the  years  ended  December  31,  1997,  1996 and 1995,
         respectively.  The difference between taxable income and book income is
         primarily related to timing differences in depreciation expense.

                                      F-11

<PAGE>

                              PS PARTNERS II, LTD.
                           SCHEDULE III - REAL ESTATE
                          AND ACCUMULATED DEPRECIATION

<TABLE>
<CAPTION>
                                                                                        
                                                                                    Costs      
                                                         Initial Cost             subsequent   
                                                 -------------------------------to acquisition
  Date                                                          Building &        Building &   
Acquired           Description    Encumbrances      Land        Improvement      Improvements  
----------------------------------------------------------------------------------------------



  <S>                                   <C>         <C>          <C>            <C>            
  1/83      Raleigh/Yonkers             $-          $203,000       $914,000       $361,000     
  4/84      Milwaukie/Oregon             -           289,000        584,000        225,000     
  5/84      Virginia Beach               -           509,000      2,121,000        597,000     
  6/84      Lorton                       -           435,000      2,040,000        460,000     
  6/84      Baltimore                    -           382,000      1,793,000        530,000     
  6/84      Laurel                       -           501,000      2,349,000        610,000     
                                 -------------------------------------------------------------

            TOTAL                       $-        $2,319,000     $9,801,000     $2,783,000     
                                 =============================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                        
                                                  Gross Carrying Amount
                                              At December 31, 1997
                                 -----------------------------------------------------------
  Date                                            Building &                  Accumulated
Acquired           Description         Land      Improvements       Total     Depreciation
--------------------------------------------------------------------------------------------



  <S>                              <C>          <C>             <C>           <C>     
  1/83      Raleigh/Yonkers          $203,000    $1,275,000      $1,478,000     $690,000
  4/84      Milwaukie/Oregon          289,000       809,000       1,098,000      437,000
  5/84      Virginia Beach            509,000     2,718,000       3,227,000    1,428,000
  6/84      Lorton                    435,000     2,500,000       2,935,000    1,350,000
  6/84      Baltimore                 382,000     2,323,000       2,705,000    1,252,000
  6/84      Laurel                    501,000     2,959,000       3,460,000    1,571,000
                                 ---------------------------------------------------------

            TOTAL                  $2,319,000   $12,584,000     $14,903,000   $6,728,000
                                 =========================================================
</TABLE>

                                      F-12

<PAGE>

                              PS PARTNERS II, LTD.
                           REAL ESTATE RECONCILIATION
                            SCHEDULE III (CONTINUED)


(A)  The  following  is  a  reconciliation  of  cost  and  related   accumulated
     depreciation.

                       GROSS CARRYING COST RECONCILIATION

                                               Years Ended December 31,
                                      -----------------------------------------
                                         1997           1996         1995
                                      -----------------------------------------

Balance at beginning of the period     $28,040,000   $27,673,000   $27,338,000

Additions during the period:
     Improvements, etc.                    260,000       367,000       335,000

Deductions during the period:
     Disposition of real estate        (13,397,000)            -             -
                                      -----------------------------------------

Balance at the close of the period     $14,903,000   $28,040,000   $27,673,000
                                      =========================================


                     ACCUMULATED DEPRECIATION RECONCILIATION


                                               Years Ended December 31,
                                      -----------------------------------------
                                         1997           1996         1995
                                      -----------------------------------------

Balance at beginning of the period     $10,970,000    $9,890,000    $8,917,000

Additions during the period:
     Depreciation                          616,000     1,080,000       973,000

Deductions during the period:
     Disposition of real estate         (4,858,000)            -             -
                                      -----------------------------------------

Balance at the close of the period      $6,728,000   $10,970,000    $9,890,000
                                      =========================================

(B) The  aggregate  cost of real  estate  for  Federal  income tax  purposes  is
    $15,076,000.

                                      F-13

<PAGE>

                         Report of Independent Auditors


The Partners
SEI/PSP II Joint Ventures


We have  audited  the  balance  sheets of the  SEI/PSP II Joint  Ventures  as of
December  31,  1997 and 1996 and the  related  statements  of income,  partners'
equity and cash flows for each of the three years in the period  ended  December
31, 1997. Our audits also included the financial  statement  schedule  listed in
the  Index  at  Item  14(a).These  financial  statements  and  schedule  are the
responsibility  of the Joint  Ventures'  management.  Our  responsibility  is to
express an opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial position of the SEI/PSP II Joint Ventures
at December 31, 1997 and 1996,  and the results of its operations and cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.






                                                               ERNST & YOUNG LLP

February 23, 1998
Los Angeles, CA

                                      F-14

<PAGE>

                            SEI/PSP II JOINT VENTURES
                                 BALANCE SHEETS
                           December 31, 1997 and 1996

<TABLE>
<CAPTION>

                                                                               1997               1996
                                                                        --------------------------------------

                                     ASSETS


<S>                                                                           <C>                 <C>     
Cash and cash equivalents                                                        $197,000            $164,000

Rent and other receivables                                                         70,000              47,000

Real estate facilities, at cost:
     Land                                                                       8,261,000          10,774,000
     Buildings and equipment                                                   46,941,000          51,822,000
                                                                        --------------------------------------
                                                                               55,202,000          62,596,000

         Less accumulated depreciation                                        (25,420,000)        (26,713,000)
                                                                        --------------------------------------
                                                                               29,782,000          35,883,000

Investment in real estate entity                                                5,142,000                   -

Other assets                                                                       54,000             178,000
                                                                        --------------------------------------

                                                                              $35,245,000         $36,272,000
                                                                        ======================================


                        LIABILITIES AND PARTNERS' EQUITY


Accounts payable                                                                 $174,000            $291,000

Advance payments from renters                                                     342,000             348,000

Partners' equity:
     PS Partners II, Ltd.                                                      19,763,000          20,564,000
     Public Storage, Inc.                                                      14,966,000          15,069,000
                                                                        --------------------------------------

Total partners' equity                                                         34,729,000          35,633,000
                                                                        --------------------------------------

                                                                              $35,245,000         $36,272,000
                                                                        ======================================
</TABLE>
                            See accompanying notes.
                                      F-15

<PAGE>

                            SEI/PSP II JOINT VENTURES
                              STATEMENTS OF INCOME
              For the years ended December 31, 1997, 1996, and 1995

<TABLE>
<CAPTION>
                                                                         1997              1996              1995
                                                                   -----------------------------------------------------

REVENUE:

<S>                                                                     <C>               <C>               <C>        
Rental income                                                           $10,799,000       $11,005,000       $10,780,000
Equity in earnings of real estate entity                                    187,000                 -                 -
                                                                   -----------------------------------------------------
                                                                         10,986,000        11,005,000        10,780,000
                                                                   -----------------------------------------------------

COSTS AND EXPENSES:

Cost of operations                                                        3,388,000         3,627,000         3,335,000
Management fees                                                             648,000           653,000           638,000
Depreciation and amortization                                             2,271,000         2,422,000         2,320,000
Interest Expense                                                                  -            14,000           177,000
Environmental costs                                                               -                 -            76,000
                                                                   -----------------------------------------------------
                                                                          6,307,000         6,716,000         6,546,000
                                                                   -----------------------------------------------------


                                                                   -----------------------------------------------------
NET INCOME                                                               $4,679,000        $4,289,000        $4,234,000
                                                                   =====================================================


Partners' share of net income:
          PS Partners II, Ltd.'s share                                   $2,947,000        $2,652,000        $2,735,000
          Public Storage Inc.'s share                                     1,732,000         1,637,000         1,499,000
                                                                   -----------------------------------------------------
                                                                         $4,679,000        $4,289,000        $4,234,000
                                                                   =====================================================
</TABLE>
                            See accompanying notes.
                                      F-16

<PAGE>

                            SEI/PSP II JOINT VENTURES
                         STATEMENTS OF PARTNERS' EQUITY
              For the years ended December 31, 1997, 1996, and 1995


<TABLE>
<CAPTION>
                                                                   PS Partners         Public Storage
                                                                    II., Ltd.               Inc.             Total
                                                              ----------------------------------------------------------

<S>                  <C> <C>                                      <C>                   <C>                  <C>        
Balances at December 31, 1994                                     $22,743,000           $14,001,000          $36,744,000

Net income                                                          2,735,000             1,499,000            4,234,000

Distributions                                                      (4,465,000)           (1,703,000)          (6,168,000)

                                                              ----------------------------------------------------------
Balances at December 31, 1995                                      21,013,000            13,797,000           34,810,000

Net income                                                          2,652,000             1,637,000            4,289,000

Distributions                                                      (3,101,000)             (365,000)          (3,466,000)

                                                              ----------------------------------------------------------
Balances at December 31, 1996                                      20,564,000            15,069,000           35,633,000

Net income                                                          2,947,000             1,732,000            4,679,000

Distributions                                                      (3,748,000)           (1,835,000)          (5,583,000)
                                                              ----------------------------------------------------------

Balances at December 31, 1997                                     $19,763,000           $14,966,000          $34,729,000
                                                              ==========================================================
</TABLE>
                            See accompanying notes.
                                      F-17

<PAGE>

                            SEI/PSP II JOINT VENTURES
                            STATEMENTS OF CASH FLOWS
              For the years ended December 31, 1997, 1996, and 1995


<TABLE>
<CAPTION>
                                                                              1997            1996            1995
                                                                        -------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:

<S>                                                                        <C>             <C>             <C>       
Net income                                                                 $4,679,000      $4,289,000      $4,234,000

     Adjustments to reconcile net income to net cash
         provided by operating activities

         Depreciation and amortization                                       2,271,000        2,422,000       2,320,000
         Increase in rent and other receivables                                (23,000)         (36,000)         (2,000)
         Decrease (increase) in other assets                                   124,000          (55,000)         (8,000)
         (Decrease) increase in accounts payable                              (117,000)         (68,000)        120,000
         Decrease in advance payments from renters                              (6,000)          (1,000)         (9,000)
         Equity in earnings of real estate entity                             (187,000)               -               -

                                                                        -------------------------------------------------
         Total adjustments                                                   2,062,000        2,262,000       2,421,000

                                                                        -------------------------------------------------
              Net cash provided by operating activities                      6,741,000        6,551,000       6,655,000
                                                                        -------------------------------------------------

CASH FLOWS USED IN  INVESTING ACTIVITIES:

         Distributions from real estate entity                                  76,000                -               -
         Additions to real estate facilities                                (1,201,000)        (869,000)       (468,000)
                                                                        -------------------------------------------------
              Net cash used in  investing activities                        (1,125,000)        (869,000)       (468,000)
                                                                        -------------------------------------------------

CASH FLOWS USED IN FINANCING ACTIVITIES:

         Principal payments on mortgage notes payable                                -       (2,260,000)        (66,000)
         Distributions to partners                                          (5,583,000)      (3,466,000)     (6,168,000)
                                                                        -------------------------------------------------
              Net cash used in financing activities                         (5,583,000)      (5,726,000)     (6,234,000)
                                                                        -------------------------------------------------

Net increase (decrease) in cash and cash equivalents                            33,000          (44,000)        (47,000)
Cash and cash equivalents at the beginning of the period                       164,000          208,000         255,000
                                                                        -------------------------------------------------

Cash and cash equivalents at the end of the period                            $197,000         $164,000        $208,000
                                                                        =================================================
</TABLE>
                            See accompanying notes.
                                      F-18

<PAGE>

                            SEI/PSP II JOINT VENTURES
                            STATEMENTS OF CASH FLOWS
              For the years ended December 31, 1997, 1996, and 1995
                                   (Continued)


<TABLE>
<CAPTION>
                                                                                   1997           1996         1995
                                                                              -------------------------------------------


Supplemental schedule of noncash investing and financing activities:


     <S>                                                                         <C>                <C>          <C>
     Investment in real estate entity                                            $(5,031,000)       $-           $-

     Transfer of real estate facilities for interest in real estate entity,
     net                                                                           5,031,000         -            -

</TABLE>
                            See accompanying notes.
                                      F-19

<PAGE>

                            SEI/PSP II JOINT VENTURES
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1997


1.       Description of Partnership 
         -------------------------- 

                  SEI/PSP II Joint Ventures (the "Joint  Venture") was formed on
         December 31, 1990 in connection with the  consolidation  of 22 separate
         general  partnerships  between  Public  Storage  Inc.  ("PSI")  and  PS
         Partners  II,  Ltd.  ("PSP  II").   The  Joint  Venture,   through  its
         predecessor general partnerships,  invested in existing  mini-warehouse
         facilities which offer self-service  storage spaces for lease,  usually
         on a  month-to-month  basis,  to the  general  public  and, to a lesser
         extent, in existing business park facilities which offer industrial and
         office space for lease.

                  The Joint Venture owns 27 properties  (referred to hereinafter
         as the  "Mini-Warehouses"),  which  excludes  one  property  which  was
         transferred to PS Business Parks, L.P.  ("PSBPLP") in January 1997. PSP
         II is the  managing  general  partner  of the Joint  Venture,  with its
         ownership interests in the properties of the Joint Venture ranging from
         36% to 90%.

2.       Summary of Significant Accounting Policies and Partnership Matters
         ------------------------------------------------------------------

         Basis of Presentation
         ---------------------

                  The  financial  statements  include the  accounts of the Joint
         Venture.

                  Under the terms of the general  partnership  agreement  of the
         Joint  Venture,   for  property   acquisitions   in  which  PSI  issued
         convertible securities to the sellers for its interest,  PSI's right to
         receive  cash flow  distributions  for any year after the first year of
         operation are  subordinated to cash  distributions to PSP II equal to a
         cumulative  annual  7% of its  cash  investment  (not  compounded).  In
         addition,  upon sale or  refinancing  of a  property  for more than its
         original   purchase   price,   distribution   of  proceeds  to  PSI  is
         subordinated  to  the  return  to  PSP II of  the  amount  of its  cash
         investment and the 7% distribution described above.

         Depreciation and amortization
         -----------------------------

                  The Joint Venture depreciates the buildings and equipment on a
         straight-line  method over  estimated  useful  lives of 25 and 5 years,
         respectively.  Leasing commissions relating to business park properties
         are expensed when incurred.

         Revenue Recognition
         -------------------

                  Property rents are recognized as earned.

         Allocation of Net Income to PSP II and PSI
         ------------------------------------------

                  Net income  prior to  depreciation  is allocated to PSP II and
         PSI based upon their relative  ownership  interest in each property and
         the results of each property.

                  Under the terms of the general  partnership  agreement  of the
         Joint Venture all depreciation  and  amortization  with respect to each
         Joint  Venture  is  allocated  solely to PSP II until it  recovers  its
         initial  capital   contribution.   Thereafter,   all  depreciation  and
         amortization  is allocated  solely to PSI until it recovers its initial
         capital  contribution.  All remaining  depreciation and amortization is
         allocated  to  PSP  II  and  PSI  in  proportion  to  their   ownership
         percentages.

                                      F-20

<PAGE>

2.       Summary of  Significant  Accounting  Policies and  Partnership  Matters
         -----------------------------------------------------------------------
         (Continued)
         -----------

         Cash Distributions
         ------------------

                  The  general  partnership   agreement  of  the  Joint  Venture
         provides for regular  distributions  of cash flow from  operations  (as
         defined).

         Cash and Cash Equivalents
         -------------------------

                  For financial statement purposes,  the Joint Venture considers
         all highly liquid investments purchased with a maturity of three months
         or less to be cash equivalents.

         Environmental Cost
         ------------------

                  Substantially  all of the real estate  facilities in which the
         Joint Venture has an interest  were acquired  prior to the time that it
         was  customary to conduct  extensive  environmental  investigations  in
         connection with the property acquisitions. During the fourth quarter of
         1995,  an   independent   environmental   consulting   firm   completed
         environmental assessments on the Joint Venture's properties to evaluate
         the environmental condition of, and potential environmental liabilities
         of such  properties.  Based upon these  evaluations,  the Joint Venture
         accrued a total of $76,000 of environmental  expense in 1995.  Although
         there  can be no  assurance,  the  Joint  Venture  is not  aware of any
         additional    unaccrued    environmental     contamination    of    the
         Mini-Warehouses.

         Use of Estimates
         ----------------

                  The preparation of the financial statements in conformity with
         generally accepted  accounting  principles  requires management to make
         estimates  and  assumptions  that  affect the  amounts  reported in the
         financial  statements  and  accompanying  notes.  Actual  results could
         differ from those estimates.

3.       Real Estate Facilities
         ----------------------

                  In 1995,  the  Financial  Accounting  Standards  Board  issued
         Statement of Financial  Accounting Standards No. 121 ("Statement 121"),
         "Accounting for the Impairment of Long-Lived  Assets and for Long-Lived
         Assets to be Disposed of." Statement 121 requires  impairment losses to
         be recorded on long-lived  assets used in operations when indicators of
         impairment are present and the undiscounted  cash flows estimated to be
         generated  by those assets are less than the assets'  carrying  amount.
         Statement 121 also  addresses the method of accounting  for  long-lived
         assets that are  expected to be  disposed.  The Joint  Venture  adopted
         Statement 121 in 1996 and the adoption had no effect.

                  In  November  1994,  the  Massachusetts   Bay   Transportation
         Authority  exercised its right of eminent domain and took possession of
         the Joint Venture's mini-warehouse located in Weymouth,  Massachusetts.
         The  Joint   Venture   received   initial   condemnation   proceeds  of
         approximately  $1,910,000,  resulting in the  recognition  of a gain on
         disposition of real estate facilities of $224,000.

                  The Joint  Venture is presently  contesting  the amount of the
         initial  condemnation  proceeds,  however,  there is no assurance  that
         additional condemnation proceeds will be received.

                                      F-21

<PAGE>


3.       Real Estate Facilities (Continued)
         ----------------------------------

                  In  January  1997,   the  Joint  Venture  and  PSI  and  other
         affiliated partnerships of PSI transferred a total of 35 business parks
         to PSBPLP, an operating  partnership formed to own and operate business
         parks in which  PSI has a  significant  interest.  Included  among  the
         properties  transferred  was  the  Joint  Venture's  business  park  in
         exchange for a partnership  interest in PSBPLP.  The general partner of
         PSBPLP is PS Business Parks, Inc.

4.       Investment in real estate entity
         --------------------------------

                  In 1997,  the Joint Venture  recognized  $187,000 in equity in
         earnings of real estate  entities  with  respect to the  investment  in
         PSBPLP described in Note 1 above.

                  The  accounting  policies of PSBPLP are similar to that of the
         Joint  Venture.  Summarized  combined  financial  data with  respect to
         PSBPLP is as follows:

                                                                 1997
                                                             --------------

For the year ended December 31,
    Total revenues                                             $31,578,000
    Minority interest in income                                  8,566,000
    Net income                                                   3,836,000

At December 31,
    Total assets, net of accumulated depreciation             $323,454,000
    Total liabilities                                           11,831,000
    Total minority interest                                    168,665,000
    Total equity                                               142,958,000

                 PS Business  Parks,  Inc.,  which owns PSBPLP,  is a registrant
         with the  Securities  and Exchange  Commission,  and its filings can be
         accessed through the Securities and Exchange Commission.

5.       Related Party Transactions
         --------------------------

                  The Joint Venture has a management  agreement with PSI whereby
         PSI  operates  the  Mini-Warehouses  for a  fee  equal  to  6%  of  the
         facilities' monthly gross revenue (as defined).

                  In January 1997,  the Joint Venture  transferred  its business
         park  facility  to PSBPLP in  exchange  for a  partnership  interest in
         PSBPLP.

                  PSI has a significant economic interest in PSBPLP and PSBP.

6.       Leases
         ------

                  The  Joint   Venture  has   invested   primarily  in  existing
         mini-warehouse  storage  facilities  which offer  self-service  storage
         spaces  for lease to the  general  public.  Leases  for such  space are
         usually on a month-to-month basis.

                                      F-22

<PAGE>

7.       Taxes Based on Income
         ---------------------

                  Taxes based on income are the responsibility of PSP II and PSI
         and,  accordingly,  the Joint  Venture's  financial  statements  do not
         reflect a provision for such taxes.

                  Unaudited taxable net income was $4,468,000,  $1,152,000,  and
         $3,537,000  for the  years  ended  December  31,  1997,  1996 and 1995,
         respectively.  The difference between taxable income and book income is
         primarily related to timing differences in depreciation expense.

                                      F-23

<PAGE>

                            SEI/PSP II JOINT VENTURES
                           SCHEDULE III - REAL ESTATE
                          AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
                                                                                                Costs     
                                                                     Initial Cost              subsequent 
                                                           ---------------------------------to acquisition
    Date                                                                      Building &       Building & 
  Acquired         Description               Encumbrances        Land         Improvement     Improvements
----------------------------------------------------------------------------------------------------------
<S>                                              <C>           <C>            <C>               <C>       
12/83         Charlotte                          $-            $165,000       $1,274,000        $320,000  
12/83         Greensboro/Market                   -             214,000        1,653,000         472,000  
12/83         Greensboro/Electra                  -             112,000          869,000         248,000  
12/83         Columbia                            -             171,000        1,318,000         442,000  
12/83         Richmond                            -             176,000        1,360,000         318,000  
12/83         Augusta                             -              97,000          747,000         240,000  
4/84          Providence                          -              92,000        1,087,000         313,000  
1/85          Cranston                            -             175,000          722,000         272,000  
3/84          Marrietta/Cobb                      -              73,000          542,000         223,000  
1/84          Fremont/Albrae                      -             636,000        1,659,000         417,000  
12/83         Tacoma                              -             553,000        1,173,000         341,000  
1/84          Belton                              -             175,000          858,000         458,000  
1/84          Gladstone                           -             275,000        1,799,000         373,000  
1/84          Hickman/112                         -             257,000        1,848,000         381,000  
1/84          Holmes                              -             289,000        1,333,000         240,000  
1/84          Independence                        -             221,000        1,848,000         266,000  
1/84          Merriam                             -             255,000        1,469,000         323,000  
1/84          Olathe                              -             107,000          992,000         270,000  
1/84          Shawnee                             -             205,000        1,420,000         337,000  
1/84          Topeka                              -              75,000        1,049,000         195,000  
2/84          Unicorn/Knoxville                   -             662,000        1,887,000         420,000  
2/84          Central/Knoxville                   -             449,000        1,281,000         242,000  
3/84          Manassas                            -             320,000        1,556,000         325,000  
3/84          Pico Rivera                         -             743,000          807,000         302,000  
5/84          Raleigh/Departure                   -             302,000        2,484,000         411,000  

</TABLE>

<TABLE>
<CAPTION>
                                                             Gross Carrying Amount
                                                              At December 31, 1997
                                           ------------------------------------------------------------
    Date                                                   Building &                     Accumulated
  Acquired         Description                Land        Improvements        Total      Depreciation
-------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>             <C>             <C>     
12/83         Charlotte                      $165,000      $1,594,000      $1,759,000       $873,000
12/83         Greensboro/Market               214,000       2,125,000       2,339,000      1,186,000
12/83         Greensboro/Electra              112,000       1,117,000       1,229,000        608,000
12/83         Columbia                        171,000       1,760,000       1,931,000        975,000
12/83         Richmond                        176,000       1,678,000       1,854,000        916,000
12/83         Augusta                          97,000         987,000       1,084,000        532,000
4/84          Providence                       92,000       1,400,000       1,492,000        753,000
1/85          Cranston                        175,000         994,000       1,169,000        524,000
3/84          Marrietta/Cobb                   73,000         765,000         838,000        398,000
1/84          Fremont/Albrae                  636,000       2,076,000       2,712,000      1,160,000
12/83         Tacoma                          553,000       1,514,000       2,067,000        832,000
1/84          Belton                          175,000       1,316,000       1,491,000        691,000
1/84          Gladstone                       275,000       2,172,000       2,447,000      1,159,000
1/84          Hickman/112                     257,000       2,229,000       2,486,000      1,202,000
1/84          Holmes                          289,000       1,573,000       1,862,000        846,000
1/84          Independence                    221,000       2,114,000       2,335,000      1,161,000
1/84          Merriam                         255,000       1,792,000       2,047,000        940,000
1/84          Olathe                          107,000       1,262,000       1,369,000        663,000
1/84          Shawnee                         205,000       1,757,000       1,962,000        939,000
1/84          Topeka                           75,000       1,244,000       1,319,000        669,000
2/84          Unicorn/Knoxville               662,000       2,307,000       2,969,000      1,239,000
2/84          Central/Knoxville               449,000       1,523,000       1,972,000        827,000
3/84          Manassas                        320,000       1,881,000       2,201,000      1,030,000
3/84          Pico Rivera                     743,000       1,109,000       1,852,000        626,000
5/84          Raleigh/Departure               302,000       2,895,000       3,197,000      1,550,000

</TABLE>

                                      F-24

<PAGE>

                            SEI/PSP II JOINT VENTURES
                           SCHEDULE III - REAL ESTATE
                          AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
                                                                                                Costs     
                                                                     Initial Cost              subsequent 
                                                           ---------------------------------to acquisition
    Date                                                                      Building &       Building & 
  Acquired         Description               Encumbrances        Land         Improvement     Improvements
----------------------------------------------------------------------------------------------------------
<S>                                              <C>           <C>            <C>               <C>       
7/84          Trevose/Old Lincoln                 -             421,000        1,749,000         347,000  
5/84          Philadelphia/Grant                  -           1,041,000        3,262,000         399,000  
                                          ----------------------------------------------------------------


              TOTAL                              $-          $8,261,000      $38,046,000      $8,895,000  
                                          ================================================================

</TABLE>

<TABLE>
<CAPTION>
                                                        Gross Carrying Amount
                                                         At December 31, 1997
                                          -------------------------------------------------------------
  Acquired         Description                Land        Improvements        Total      Depreciation
-------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>             <C>             <C>     
7/84          Trevose/Old Lincoln             421,000       2,096,000       2,517,000      1,098,000
5/84          Philadelphia/Grant            1,041,000       3,661,000       4,702,000      2,023,000
                                          -------------------------------------------------------------


              TOTAL                        $8,261,000     $46,941,000     $55,202,000    $25,420,000
                                          =============================================================

</TABLE>

                                     F-25

<PAGE>

                            SEI/PSP II JOINT VENTURES
                           REAL ESTATE RECONCILIATION
                            SCHEDULE III (CONTINUED)


(A)  The  following  is  a  reconciliation  of  cost  and  related   accumulated
     depreciation.

                       GROSS CARRYING COST RECONCILIATION

                                              Years Ended December 31,
                                     -------------------------------------------
                                         1997            1996          1995
                                     -------------------------------------------

Balance at beginning of the period    $62,596,000    $61,727,000    $61,259,000

Additions during the period:
     Improvements, etc.                 1,201,000        869,000        468,000

Deductions during the period:
     Disposition of real estate        (8,595,000)             -              -
                                     -------------------------------------------

Balance at the close of the period    $55,202,000    $62,596,000    $61,727,000
                                     ===========================================


                     ACCUMULATED DEPRECIATION RECONCILIATION

                                              Years Ended December 31,
                                     -------------------------------------------
                                        1997            1996          1995
                                     -------------------------------------------

Balance at beginning of the period    $26,713,000    $24,291,000    $21,971,000

Additions during the period:
     Depreciation                       2,271,000      2,422,000      2,320,000

Deductions during the period:
     Disposition of real estate        (3,564,000)             -              -
                                     -------------------------------------------

Balance at the close of the period    $25,420,000    $26,713,000    $24,291,000
                                     ===========================================

(B) The  aggregate  cost of real  estate  for  Federal  income tax  purposes  is
    $55,181,000.

                                      F-26